The Indian Rupee (INR) remains stable against the US Dollar (USD) during Asian trading hours, trading around 86.30. The potential for further declines in the pair may be limited as the USD gains traction amid risk aversion linked to US tariff policies.
Rising crude oil prices could present challenges for the INR due to India’s status as the third-largest oil consumer. The geopolitical tensions in the Middle East, particularly Israel’s new ground operations in Gaza, are pivotal in driving energy costs higher.
Foreign Investment And Market Trends
Indian equities showed gains as Foreign Portfolio Investors turned buyers recently, with market flows being monitored before the FTSE March semi-annual review. Projections suggest net inflows of $1.4 billion may enter Indian markets.
Tech stocks fueled the market rally, supported by performance in US markets, while banking stocks experienced upward movement due to slower inflation. This environment has enabled the Reserve Bank of India (RBI) to take a more accommodating approach to the INR.
The RBI has recently cut rates for the first time in nearly five years, aligning with market expectations. Continuing liquidity concerns are likely to prompt further easing from the central bank amidst a GDP growth rate of 6.5% for the current financial year.
The US Dollar Index (DXY) is trading higher near 103.90, but may face pressures from declining US bond yields. Federal Reserve Chair Jerome Powell has commented on inflation, suggesting risks of recession remain relatively low.
US Initial Jobless Claims for the week ending March 15 rose to 223,000, slightly overshadowing estimates. The Philadelphia Fed Manufacturing Survey also showed a decline, easing to 12.5 MoM.
Reserve Bank Policies And Forex Interventions
Intervention by the RBI to absorb USD inflows has aimed to rebuild foreign exchange reserves. The yield on the 10-year Indian G-Sec has fallen to 6.68%, marking its lowest level in three years.
Technical analysis suggests a bearish bias for the USD/INR pair, with immediate support near 86.14, and a critical resistance at 86.57. A break above this resistance could enhance the pair’s short-term price momentum.
External factors significantly influence the INR, including crude oil prices, USD value, and foreign investment levels. The RBI actively intervenes in forex markets to stabilise the exchange rate and manages interest rates to strengthen the currency.
Macroeconomic factors like inflation, interest rates, GDP growth, trade balance, and foreign investment inflows also affect the INR’s value. A higher growth rate and favourable trade balance can bolster demand for the currency, while high inflation tends to devalue it.
Stability in the rupee against the dollar indicates that market forces are finding equilibrium for now. Yet, the boost in the dollar’s strength, spurred by investor caution over US tariff measures, suggests resistance to further depreciation in the pair. Any upcoming trade policy decisions from the US could shift sentiment quickly.
As one of the top global oil consumers, India’s exposure to fluctuating crude prices remains a pressure point. The escalation of Middle Eastern conflicts, particularly military developments by Israeli forces in Gaza, is feeding into energy costs. That, in turn, means increased import bills, which could weigh on the rupee if current trends persist.
A shift in foreign investor sentiment appears to be supportive for domestic equities. With the FTSE rebalancing in March, expected portfolio inflows of roughly $1.4 billion should be monitored for their effect on broader liquidity conditions. Initial indications show that technology stocks have been the main driver behind recent gains, taking cues from strength in US markets. Banking stocks, too, have benefited, aided by inflation easing somewhat.
A more flexible monetary approach from the Reserve Bank of India has been possible under these conditions. Cutting rates—historically rare moves for the central bank—suggests policymakers are addressing liquidity concerns with long-term economic growth in mind. More such measures seem likely, particularly with GDP expanding at 6.5% in the current fiscal period.
In the US, the dollar index is climbing but faces pressure from softening bond yields. Powell’s remarks highlight that while inflation remains a concern, recession risks appear subdued. Meanwhile, an uptick in initial jobless claims last week and a weaker-than-expected Philadelphia Fed Manufacturing report give mixed signals. The market could interpret these as indications of slower economic activity, affecting dollar momentum.
Back home, India’s foreign exchange reserves are being rebuilt through interventions to absorb surplus dollar inflows. Yields on the benchmark 10-year government bond sliding to 6.68%—a three-year low—reflect both easing inflation and ongoing central bank strategies to manage liquidity.
Technical indicators currently favour downside momentum in the USD/INR pair. Immediate support is noted at 86.14, while resistance at 86.57 will be key. If that level is breached, further upward movement could be reinforced in the short term.
Global influences, oil prices, and capital flows will continue to dictate near-term direction. The central bank’s dual role—stabilising currency markets via interventions and adjusting interest rates in response to domestic and external cues—remains crucial in shaping market movements.
Economic fundamentals will also steer rupee performance. Robust growth and an improved trade balance lend support; persistent inflationary risks, on the other hand, erode purchasing power. As policies evolve and capital flows adjust, the direction of rates and the exchange rate will likely remain as focal points for traders and investors alike.
