Key Moments
- USD/INR trades close to 97.00, hovering near its all-time high as the Rupee lags major peers.
- WTI Oil trades near $101.80, over 50% higher since the start of the Middle East conflict, intensifying pressure on oil-importing economies such as India.
- Foreign Institutional Investors turned net sellers on Tuesday, offloading Indian equities worth Rs. 2,457.49 crore after three sessions of net buying.
Energy Shock Keeps Rupee Pinned Near Record Weakness
The Indian Rupee (INR) continues to trail the US Dollar (USD), with the USD/INR pair holding close to fresh all-time highs on Wednesday. The pair trades near 97.00, reflecting persistent weakness in the Rupee as global energy markets remain under stress.
Elevated crude prices, driven by fears of a prolonged shutdown of the Strait of Hormuz, remain a major headwind for India. Although WTI Oil is quoted around $101.80 at press time, it is still more than 50% higher compared to levels seen at the onset of the war in the Middle East. Currencies from economies that rely heavily on imported oil to meet energy needs, such as India, tend to lag in such an environment.
Oil Prices Stay Firm Amid Unresolved US-Iran Disputes
Crude benchmarks remain buoyant as talks between the United States and Iran fail to resolve several contentious issues. Negotiations continue to stall over matters including Tehran’s nuclear program, demands for compensation related to war damage, and the US blockade of Iranian seaports.
According to IRNA, Iran’s Deputy Foreign Minister Kazem Gharibabadi said on Tuesday that lifting sanctions, releasing frozen funds, and ending the US blockade are among the core demands outlined in Iran’s latest proposal to Washington.
At the same time, geopolitical tensions remain elevated. US President Donald Trump has warned that the United States could resume military strikes on Iran if a deal is not reached soon. Trump said on Tuesday that he does not seek a broader war, but indicated that Washington could strike again within days.
“I hope we don’t have to do the war, but we may have to give them another big hit,” Trump told reporters on Tuesday. When asked how long he would wait, Trump said, “Well, I mean, I’m saying two or three days, maybe Friday, Saturday, Sunday. Something maybe early next week — a limited period of time.”
Iran has signaled that it is ready to respond to any escalation. On Tuesday, an Iranian army spokesperson stated that the country’s forces would “open new fronts” against the US should attacks resume.
FII Flows Reverse as Investors Reassess India Risk
Foreign Institutional Investors, who had been net buyers of Indian equities for three consecutive sessions, shifted stance on Tuesday amid rising worries over India’s growth outlook in the face of higher energy costs. FIIs turned net sellers, trimming exposure by Rs. 2,457.49 crore.
This marks a reversal from the previous three trading days, during which FIIs collectively purchased Indian shares worth Rs. 4,330.32 crore. The renewed selling underscores investor caution as external headwinds – particularly from crude prices – intensify.
| FII Activity | Value (Rs. crore) |
|---|---|
| Net buying over previous 3 sessions (cumulative) | 4,330.32 |
| Net selling on Tuesday | 2,457.49 |
Rising US Yields Fuel Risk-Off Mood and Hurt INR
The Rupee is also facing pressure from the rates market, where US Treasury yields continue to climb. Firm expectations that the Federal Reserve will refrain from cutting interest rates this year are pushing yields higher and weighing on risk-sensitive currencies, including the INR.
The 10-year US Treasury yield has reached a new yearly high of 4.69% during the session. Market-derived expectations, as reflected by the CME FedWatch tool, show a 56.3% probability of at least one additional Fed rate hike this year, with the remaining probabilities nearly all pointing to rates being kept unchanged.
USD/INR Technical Picture: Uptrend Intact Above 20-Day EMA
USD/INR is trading around 96.85 at the time of writing, maintaining a firm tone. The pair remains comfortably above its 20-day Exponential Moving Average (EMA) at 95.29, reinforcing a constructive short-term bias.
Momentum indicators also highlight the strength of the move. The 14-day Relative Strength Index (RSI) stands at 72.96, in overbought territory. This indicates that bullish momentum is strong but increasingly extended, which may trigger brief pullbacks or consolidation phases rather than a seamless continuation upward.
On the downside, initial support aligns with the 20-day EMA near 95.29. A retreat toward this level would likely attract buying interest as long as the broader uptrend remains in place. A daily close below the 20-day EMA would signal scope for a deeper corrective phase, but while the price stays above this threshold, the dominant bias favors further gains despite stretched momentum conditions.
On the upside, if USD/INR stabilizes above 97.00, the pair could look to challenge the 98.00 region as the next potential target within the prevailing uptrend.
Related Market Views
- Indian Rupee: Forecast lifted to 95-100 against US Dollar – DBS
- US Treasuries: Long-end yields hit post-crisis highs – Deutsche Bank
- US Dollar Index (DXY) pushes against 99.44 highs amid growing geopolitical risks
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