The Indian rupee (INR) opened tender against the US dollar (USD) on Thursday, failing to capitalize on Wednesday’s mighty move higher. The USD/INR pair is rising 0.35% to almost 94.87 on the lack of a positive response from Iran to the one-page Memorandum of Understanding (MoU) to end its war with the United States (US).
Iran continues to review the US one-page memorandum of understanding
Although there are positive comments from the United States and Pakistan that Washington and Tehran are close to reaching an agreement, according to the BBC, Iran has stated that it is still analyzing the US proposal.
In the latest update, a senior member of Iran’s parliament rejected the US proposal, calling it a “wish list,” according to the BBC.
Confirmation of the one-page memorandum of understanding, which constitutes a 14-point proposal, by both sides would lead to an immediate ceasefire and the establishment of a 30-day negotiating window. The peace proposal includes Iran halting uranium enrichment, releasing frozen Iranian assets and reopening the Strait of Hormuz.
Meanwhile, the lack of further selling in crude oil prices after a vertical decline on Wednesday also keeps the Indian rupee under pressure. As of this writing, the price of WTI crude oil has dropped slightly to almost $92.80. On Wednesday, the price of WTI crude oil fell by more than 13% to $86.90, but recovered some of its losses and closed above $93.00.
FIIs remain in dump mode
Despite risk flows dominating global markets amid optimism surrounding the US-Iran peace deal, foreign institutional investors (FIIs) continue to abandon their holdings in the Indian stock market. So far in May, FIIs have remained net sellers on two of the three trading days and have disposed of their holdings worth Rs. 6620.86 crores.
Heightened concerns about India’s economic growth and inflation prospects, coupled with expectations that energy prices will remain higher for a longer period even if the US and Iran reach a peace plan today, are hurting foreign investor sentiment towards the Indian stock market.
America’s NFP is in the spotlight
While the Indian rupee is struggling to attract significant bids amid risk-on sentiment, the appeal of the US dollar has waned. At press time, the U.S. Dollar Index (DXY), which tracks the value of the U.S. dollar against six major currencies, is holding steady around 98.00; but it is close to the more than two-month low of 97.62 posted on Wednesday.
Going forward, investors will be paying close attention to April’s U.S. nonfarm payrolls (NFP) data, which will be released on Friday, for up-to-date information on the Federal Reserve’s (Fed) monetary policy outlook. The jobs report is expected to show the economy added 60,000 jobs. up-to-date jobs.
Technical Analysis: USD/INR Holds Key 20-Day EMA
On Thursday’s opening session, the USD/INR rate rose to around 94.87. The pair maintains a bullish bias in the near term as the spot price remains above the 20-day exponential moving average (EMA) at 94.2288. The pair is consolidating near recent highs while remaining comfortably supported by this energetic lower level, and the relative strength index (RSI) around 59 suggests positive but not excessive momentum, indicating that buyers still have the upper hand as long as the price holds above the 20-day EMA.
On the downside, there is immediate support at the 20-day EMA near 94.23; a decisive break below this level would reveal a deeper corrective move towards 93.00. Looking higher, the pair could enter uncharted territory if it manages to break the all-time high of 95.53 posted on Tuesday. Initial resistance would be 96.00 and then 96.50.
(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. Moreover, 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.
