The Indian Rupee (INR) is depreciating against the US Dollar (USD) in Thursday’s opening session. The USD/INR pair is rebounding to near 92.65 from a 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 is weakening in early trade amid growing doubts over the durability of the US-Iran ceasefire and continued outflow of foreign funds from the Indian stock market.
Iran accuses the US of violating three clauses of the 10-point proposal
Iranian parliament speaker and chief negotiator Mohammad Bagher Qalibaf said in an X post on Wednesday that the United States had violated three clauses of the 10-point proposal that Tehran presented as demands in exchange for a eternal ceasefire while agreeing to reopen the Strait of Hormuz.
Iran’s Qalibaf clearly criticized the US for failing to comply with the first clause of the 10-point proposal, which stated “an immediate ceasefire everywhere, including Lebanon and other regions, with immediate effect.” He warned that a ceasefire under such conditions was “unjustified.”
This has increased uncertainty about the durability of the US-Iran ceasefire, which has revived the risk-off impulse, weighing on riskier assets.
Meanwhile, the White House announced on Wednesday that it is sending a team led by Vice President (VP) J.D. Vance to Pakistan for the first round of negotiations on Saturday.
FIIs remain net sellers despite Iran announcing ceasefire
Foreign institutional investors (FIIs) continue to remain net sellers in the Indian stock market even as the US and Iran announced a two-week ceasefire. On Wednesday, FIIs sold their shares worth Rs. 2,811.97 crores. However, the amount sold by foreign investors was significantly lower than the average sales observed in the previous trading days in April. In the first four trading days of this month, the average sales by foreign investors were worth Indian rupees. 8,780.39 crores.
The RBI will leave interest rates unchanged on Wednesday
In its monetary policy statement on Wednesday, the Reserve Bank of India (RBI) maintained the status quo, leaving the repo rate unchanged at 5.25% for the second consecutive time. India’s central bank was expected to do so as higher oil prices resulting from the war in the Middle East de-anchored inflation expectations around the world.
RBI Governor Sanjay Malhotra has warned that increased energy prices could trigger imported inflation and widen the current account deficit.
Technical Analysis: USD/INR Remains Below 20-Day EMA
At the beginning of trading, USD/INR is higher at around 92.60. However, the near-term tone appears bearish as the spot holds below the 20-day exponential moving average (EMA) at 92.90. The pair’s inability to regain active resistance following the recent pullback suggests that growth attempts remain constrained for now, while the Relative Strength Index (RSI) around the mid-40s indicates waning upward momentum rather than completely oversold conditions.
On the other hand, the 20-day EMA at 92.90 is the first level that buyers need to clear to ease the immediate downside pressure and pave the way for a more sustained recovery towards 94.00. On the other hand, immediate support comes from Wednesday’s low of 92.20, followed by the March 5 low of 91.40.
(The technical analysis for this story was written with the assist of an AI tool.)
Indian Rupee FAQs
The Indian rupee (INR) is one of the most sensitive currencies to external factors. The price of oil (the country is largely dependent on imported oil), the value of the US dollar – most trade takes place in USD – and the level of foreign investment are influenced. Direct intervention by the Reserve Bank of India (RBI) in the foreign exchange markets to maintain a stable exchange rate, as well as the level of interest rates set by the RBI, are other major factors influencing the rupee rate.
The Reserve Bank of India (RBI) actively intervenes in the forex markets to maintain a stable exchange rate and facilitate trading. Additionally, the RBI is trying to keep the inflation rate at the target of 4% by adjusting interest rates. Higher interest rates tend to strengthen the rupee. This is due to the role of the carry trade, where investors borrow from countries with lower interest rates to place their money in countries offering relatively higher interest rates and profit from the difference.
Macroeconomic factors affecting the value of the rupee include inflation, interest rates, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate may lead to more foreign investment, increasing demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates net of inflation), are also positive for the rupee. A risk-laden environment may lead to higher inflows of foreign direct and indirect investment (FDI and FII), which also benefits the rupee.
Higher inflation, especially if it is comparably higher than in other Indian countries, is generally negative for the currency because it reflects devaluation due to oversupply. Inflation also increases the cost of exports, which leads to more rupees being sold to buy foreign imports, which is negative against the rupee. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates, which can be positive for the rupee due to increased demand from international investors. The opposite effect occurs in the case of lower inflation.
