Key Moments
- USD/INR trades near 95.65 as the Rupee weakens at the start of the week amid stronger U.S. labor data and higher oil prices.
- May U.S. Nonfarm Payrolls come in at 172K versus 85K expected, pushing up hawkish Federal Reserve expectations and lifting the U.S. Dollar Index toward 100.00.
- Foreign Institutional Investors have been net sellers on every trading day in June so far, offloading Rs. 30,814.47 crore after selling Rs. 55,963.33 crore in May.
Rupee Opens Weaker as Dollar Strengthens
The Indian Rupee (INR) began the week under pressure against the U.S. Dollar (USD), with the USD/INR pair advancing toward 95.65 at the open. The pair’s move reflects a combination of stronger-than-expected U.S. labor market data and a spike in crude oil prices linked to renewed tensions between Iran and Israel, both of which are weighing on the Rupee.
At press time, the U.S. Dollar Index (DXY) – which measures the performance of the Greenback against six major peers – is holding on to its Friday advance around the 100.00 area, described as the highest zone in two months.
Robust U.S. Payrolls Data Fuels Hawkish Fed Expectations
On Friday, the U.S. Bureau of Labor Statistics (BLS) released stronger-than-anticipated official employment figures for May. U.S. Nonfarm Payrolls rose by 172K, exceeding the 85K consensus estimate. In addition, the April NFP reading was revised upward to 179K from the previously reported 115K. The Unemployment Rate held steady at 4.3%, in line with expectations.
The combination of solid job creation and already elevated inflation has led to a notable increase in expectations for further policy tightening by the Federal Reserve. According to the CME FedWatch tool, the probability that the Fed will implement at least one interest rate hike this year has climbed to 73.8%, up from 45.2% a week earlier.
Middle East Tensions Drive Oil Prices Higher
Geopolitical risks in the Middle East have intensified following attacks by Israeli Defense Forces (IDF) in western and central Iran over the weekend, actions that took place despite U.S. President Donald Trump urging Israeli Prime Minister Benjamin Netanyahu not to respond to Iran’s earlier attacks.
Over the weekend, Iran launched ballistic missiles at Israeli military installations in response to what it characterized as Israeli aggression in Lebanon. The escalation has stoked fears of a broader conflict in the region.
Rising hostilities have also sparked concern about the outlook for a U.S.-Iran peace deal and the possibility of an extended disruption of traffic through the Strait of Hormuz. Those risks have driven a sharp jump in crude prices. As of writing, the MCX Crude Oil contract expiring on June 18 is up 4.6% and trading near 9,020.
Currencies of countries that depend heavily on imported oil, including India, typically underperform when crude prices surge, as higher import costs can strain external balances and inflation dynamics.
FII Flows Turn Persistently Negative
Foreign Institutional Investors (FIIs) have been consistent net sellers in the Indian equity market so far in June, reducing their exposure on every trading day and selling a total of Rs. 30,814.47 crore. This follows sustained net selling in May, when overseas investors cut positions worth Rs. 55,963.33 crore.
Market participants attribute the ongoing FII outflows to growing worries about India Inc.’s earnings outlook amid the backdrop of elevated oil prices. Concerns about profit margins and macro headwinds appear to be prompting foreign investors to reassess their allocations.
| Period | FII Net Flow (Rs. crore) | Trend |
|---|---|---|
| May | 55,963.33 (net selling) | Net sellers |
| June (so far) | 30,814.47 (net selling) | Net sellers on all trading days |
USD/INR Technical Picture: Bulls Maintain Control
USD/INR is trading significantly higher around 95.65 at press time, maintaining a constructive short-term tone. The spot rate is back above the 20-day exponential moving average (EMA) at 95.4720, preserving the prevailing upward pattern.
The Relative Strength Index (RSI) stands at 53.9, placing it in a neutral-to-positive zone. This suggests that while upside momentum is not extreme, the bias currently favors buying on dips over a deeper corrective move.
On the downside, the June 5 low at 94.95 serves as the first notable support. A sustained daily close below that level could open the way for further declines toward the May 7 low near 94.00. On the topside, additional gains above the June 4 high at 96.30 could pave the way for a retest of the all-time high around 97.10.
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