Rupee Slips Dollar Rebounds Despite Oil, Policy Support

Key Moments

Rupee Softens Against Dollar Despite Supportive Backdrop

The Indian Rupee (INR) reverses initial strength and moves slightly lower against the US Dollar (USD) on Thursday, with the USD/INR pair climbing toward 95.30. This mild Rupee pullback comes even as several factors appear supportive, including softer crude prices, reports of potential US Dollar selling by the Reserve Bank of India in pre-market trade, and a modest retreat in the broader US Dollar.

In the opening session, the MCX Crude Oil contract expiring on July 20 trades about 1% lower, hovering near 6,450. This marks the lowest level in months. Typically, currencies of oil-import-dependent economies such as India tend to fare better when crude prices decline.

According to a Reuters report, the Indian central bank was likely active as a seller of US Dollars ahead of the market open, aiming to provide some backing to the Rupee.

Geopolitical Context: US-Iran Talks Seen as Constructive

Qatar’s Foreign Ministry spokesperson said that “positive progress” was made on issues related to the Memorandum of Understanding (MoU) between the US and Iran, following a separate meeting of Qatari and Pakistani mediators in Doha, CNN reported on Wednesday. The discussions were expected to focus on the future of the Strait of Hormuz, the unfreezing of Iranian assets, and Tehran’s nuclear program.

The spokesperson also said that both parties agreed to continue their dialogue, with further talks anticipated after funeral processions for Iran’s former Supreme Leader, which are planned for July 4 through July 9.

Dollar Softens Ahead of Key US Jobs Data

The US Dollar trades weaker ahead of the release of June Nonfarm Payrolls (NFP) at 12:30 GMT, as market participants await fresh signals on the Federal Reserve’s policy trajectory. At the time of writing, the US Dollar Index (DXY) – which measures the currency against six major peers – trades 0.25% lower, near 101.10.

Consensus expectations for the NFP report point to an increase of 110K jobs, compared with 172K in May. The Unemployment Rate is projected to remain unchanged at 4.3%.

Market-based pricing via the CME FedWatch tool currently indicates that traders assign an almost 85% probability that the Federal Reserve will implement at least one interest rate hike. This outlook is generally supportive for interest-bearing assets and the US Dollar.

Foreign Investors Remain Net Sellers in Indian Equities

Foreign Institutional Investors (FIIs) stayed on the sell side on the first trading day of July, divesting holdings worth Rs. 1,140.50 crore. This continued net selling by overseas investors persists even as crude oil prices have fallen back to levels seen before the Middle East conflict.

USD/INR Technical Picture: Focus on Descending Triangle Structure

USD/INR trades around 95.30 and maintains a near-term bullish tone, with the pair back above its 20-day exponential moving average (EMA) at 94.84. Price action is currently testing the downward-sloping boundary of a Descending Triangle formation, suggesting the possibility of a volatility-contraction breakout.

The Relative Strength Index (RSI) is hovering near 55, indicating a neutral-to-positive bias rather than overbought conditions. This points to the potential for buyers to emerge on dips as long as the pair remains above the short-term EMA.

On the downside, immediate technical support is located at the 20-day EMA around 94.85, followed by the structural trend-line base near 93.99. On the upside, the first resistance level is the July 1 high at 95.52, with the June 4 high at 96.30 acting as the next significant barrier.