USD/INR has stabilized above 86.00, ending a three-day decline with support bouncing off the 21-day EMA around 85.80. Even with easing geopolitical tensions, the Indian Rupee is under pressure from higher USD demand from importers and cautious market sentiment. The Rupee started stronger due to positive sentiment but quickly fell as the US Dollar Index (DXY) hovered near last week’s lows. Crude Oil prices have leveled off after a significant drop, providing only limited support for the Rupee.

Mild Recovery

The USD/INR shows a slight recovery, moving away from an intraday low with prices around 86.15 during American hours. A ceasefire between Iran and Israel has eased tensions in the Middle East, stabilizing oil prices and cooling safe-haven demand. The Indian Rupee remains volatile, fluctuating between ₹85.80 and ₹86.89 over the past week. The Reserve Bank of India (RBI) acknowledges the economy’s strength despite global challenges and has updated its inflation forecast for FY2025–26 to 3.7%. The RBI is removing excess short-term cash with a plan to withdraw ₹1 trillion via a reverse repo auction. The domestic equity market is improving, with Sensex and Nifty gaining ground, thanks to better risk appetite and easing geopolitical tensions. US new home sales have dropped sharply while the DXY trades at 97.80 during American sessions. The USD/INR is currently trading in a short-term range between 85.80 and 86.90, with a possible shift in direction expected.

Influencing Factors

The Indian Rupee is significantly affected by crude oil prices, foreign investment, and RBI policies. High inflation usually weakens the Rupee unless offset by rising interest rates, which attract international capital. The USD/INR is finding its footing above 86.00 after a few days of pressure. This bounce, although modest, is supported by the 21-day EMA close to 85.80. A drop below this level could lead to further decline, especially with overnight risks still looming. While tensions between Iran and Israel have eased, usually boosting risk appetite, the Rupee hasn’t fully benefitted. Instead, steady demand for Dollars from local importers keeps upward pressure on the USD/INR pair. Intraday trading showed mixed signals. The Rupee initially strengthened on the back of rising local equities and a sense of calm, but this optimism faded quickly. The Dollar Index hasn’t shown aggressive movement, remaining around 97.80 during U.S. hours, suggesting more hesitation in the Rupee’s performance rather than weakness in the Dollar. Meanwhile, crude oil prices have paused their decline, which usually would alleviate some pressure on trade balance, but that hasn’t yet translated into strength for the Rupee. Weekly price movement has been erratic. The exchange rate has shifted between lows of ₹85.80 and highs around ₹86.89, indicating trader unease. The RBI’s recent inflation forecast, now set at 3.7% for FY2025–26, suggests a slowing trend. The RBI stated it won’t quickly tighten monetary policy unless there’s new evidence of persistent inflation. They are managing liquidity actively, confirmed by a recent ₹1 trillion withdrawal through the reverse repo. The local equity market is showing improvement, with benchmarks like Nifty and Sensex gaining due to reduced global anxiety and renewed confidence among domestic investors. While equity inflows can support the Rupee, this support might be inconsistent when accompanied by strong hedging demand. In the U.S., data isn’t providing much support for the Dollar either. A significant drop in new home sales indicates a slowdown in the domestic economy, but the DXY remains in a tight range. The USD/INR is currently trading between 85.80 and 86.90, which seems stable unless broader risk conditions change swiftly. For now, focus will be on how crude oil stabilizes, whether equity gains continue to attract foreign investment, and any new signals from the RBI or the Fed. High inflation generally devalues the Rupee, but attractive yields in India might attract more offshore interest. Long positions in USD/INR should be watched closely for existing resistance near weekly highs, while short positions need protection below the 85.80 threshold. Beyond technicals, factors such as short-term capital flows, the extent of RBI’s liquidity operations, and global Dollar trends will be key to volatility in this pair. Create your live VT Markets account and start trading now.

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