USD/INR recovers amid uncertainty ahead of US-Iran talks
- The Indian Rupee corrects against the US Dollar as investors doubt the sustainability of the US-Iran truce.
- Iran alleges that the US violates three clauses of the 10-point proposal.
- The amount of FIIs selling on Wednesday was significantly lower than the average selling seen in the April 1-7 period.
The Indian Rupee (INR) trades lower against the US Dollar (USD) in the opening trade on Thursday. The USD/INR pair rebounds to near 92.60 from the three-week low of 92.20 posted on Wednesday, following the announcement of a ceasefire between the United States (US) and Iran.
The Indian currency weakens in the early trade due to growing doubts over the sustainability of the US-Iran ceasefire and the continuous outflow of foreign funds from the Indian stock market.
Iran criticizes US for violating three clauses of 10-point proposal
Iran’s parliament speaker and chief negotiator, Mohammad Bagher Qalibaf, said in a post on X on Wednesday, that the US has violated three clauses of the 10-point proposal, shared by Tehran as demands in consideration of a permanent ceasefire while agreeing to reopen the Strait of Hormuz.
Iran’s Qalibaf explicitly criticized the US for non-compliance with the first clause of the 10-point proposal, which was “an immediate ceasefire everywhere, including Lebanon and other regions, effective immediately”. He warned that a ceasefire in these conditions is “unreasonable”.
This has raised uncertainty regarding the sustainability of the US-Iran ceasefire, which has revived risk-off impulse, weighing on riskier assets.
Meanwhile, the White House announced on Wednesday that it is sending a team, which will be led by Vice President (VP) JD Vance, to Pakistan for the first round of negotiations on Saturday.
FIIs remain net sellers despite the Iran ceasefire announcement
Foreign Institutional Investors (FIIs) continue to remain net sellers in the Indian stock market despite the US and Iran announcing a two-week ceasefire. On Wednesday, FIIs offloaded their stake worth Rs. 2,811.97 crore. However, the amount sold by foreign investors was significantly lower than the average selling seen in the past trading days of April. In the first four trading days of this month, the average selling by overseas investors was worth Rs. 8,780.39 crore.
RBI maintains status quo, warns of widening current account deficit
In the monetary policy announcement on Wednesday, the Reserve Bank of India (RBI) maintained the status quo, leaving the Repo Rate unchanged at 5.25% for the second time in a row. The Indian central bank was expected to do so as higher oil prices due to the Middle East war had de-anchored inflation expectations globally.
RBI Governor Sanjay Malhotra warned that elevated energy prices could prompt imported inflation and widen the current account deficit.
Technical Analysis: USD/INR remains below 20-day EMA
In the early trade, USD/INR trades higher at around 92.60. However, the near-term tone seems bearish as spot holds beneath the 20-day exponential moving average (EMA) at 92.90. The pair’s inability to reclaim this dynamic resistance after the recent pullback suggests upside attempts remain capped for now, while the Relative Strength Index (RSI) around the mid-40s hints at fading bullish momentum rather than outright oversold conditions.
On the topside, the 20-day EMA at 92.90 is the first level buyers need to clear decisively to ease immediate downside pressure and open the way for a more sustained recovery toward 94.00. On the downside, Wednesday's low at 92.20 is the immediate support, followed by the March 5 low at 91.40.
(The technical analysis of this story was written with the help of an AI tool.)
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.