The Indian Rupee (INR) surges in the opening trade against the US Dollar (USD) on Thursday. The USD/INR pair plunges to near 91.80 as the Reserve Bank of India (RBI) has intervened in the foreign exchange market to offer support to the Indian Rupee against one-way excessive moves, according to Reuters.
The RBI was highly anticipated to intervene as the USD/INR pair hit a fresh all-time high of 92.67 on Wednesday amid a significant outflow of foreign funds from the Indian stock market and higher oil prices due to the war in the Middle East.
In the first two trading days of March, Foreign Institutional Investors (FIIs) have offloaded their stake worth Rs. 12,048.29 crore, almost double what they pared in the entire February. FIIs continue to distance themselves from the Indian equity market despite improving trading relations between the United States (US) and India.
Meanwhile, rising global oil prices due to the war between the US, Israel, and Iran have badly battered the currencies of nations that rely heavily on oil imports to meet their energy needs.
The war in the Middle East seems unlikely to stop anytime soon, as US President Donald Trump has stated that it will continue for four to five weeks. Meanwhile, Iran has also denied reports signaling Tehran’s openness to discuss truce terms with Washington. “No message has been sent from Iran to the US, nor will any response be given to US messages,” an official from Tehran said, Tasnim reported. Additionally, Tehran has also threatened a prolonged war.
The New York Times (NYT) reported on Tuesday that operatives from Iran’s Ministry of Intelligence reached out indirectly to the US Central Intelligence Agency (CIA) with an offer to discuss terms for ending the conflict. The news led to a sharp correction in the US Dollar Index (DXY) after it posted a fresh three-month high at 99.68.
Meanwhile, the USD Index has regained ground after retracing to near 98.67 and is up 0.25% to near 99.00 at the press time.
In the US, improving US employment conditions and signs of accelerating factory-level inflation are expected to allow Federal Reserve (Fed) officials to hold interest rates at their current levels for a longer period. The ADP Employment Report showed on Wednesday that the US private sector created 63K fresh jobs in February, significantly higher than the 50K estimate and the prior reading of 11K.
Earlier this week, the US ISM Manufacturing PMI report showed that its sub-component Prices Paid, a key measure of factory-level inflation, soared to 70.5 in February against 59.5 estimates and the previous reading of 59.0.
For more cues on the current state of the US labor market, investors will focus on the Nonfarm Payrolls (NFP) data for February, which will be released on Friday.
Technical Analysis: USD/INR retraces from all-time highs around 92.70
USD/INR corrects sharply to near 91.82 during the Asian trading session on Thursday. Still, the near-term tone remains bullish as spot holds above the rising 20-day Exponential Moving Average (EMA), which is near 91.36.
The 14-day Relative Strength Index (RSI) falls to near 62 after turning slightly overbought, indicating positive momentum has cooled but still favors dips being absorbed rather than an immediate trend reversal.
Initial support emerges at the 20-day EMA around 91.36, with a break exposing secondary support at 91.00 and then the prior reaction low near 90.60. On the topside, resistance is located at the March 4 high of 92.67.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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