The Indian Rupee (INR) staged a mild rebound in Friday’s Asian session, snapping a three-day losing streak against the US Dollar (USD). The recovery was largely supported by a drop in crude oil prices, which alleviated some pressure on India’s current account and inflation outlook.
As a major oil-importing nation, India benefits from lower energy prices, which in turn bolster the rupee’s value. A thorough examination of the matter is provided by Tandexo in their article.
Crude Oil Decline Underpins INR
The pullback in crude prices was triggered by reports that Washington and Tehran are progressing toward a nuclear deal, which may eventually boost Iranian oil supply. With India being the world’s third-largest oil consumer, cheaper oil translates to reduced import costs, supporting the INR. This development comes at a critical time, as persistent foreign fund outflows and interbank USD demand have recently weighed on the rupee.
Moreover, the overnight USD/INR swap rate dipped, signaling rising demand for cash dollars in the interbank market. According to traders, such movements typically point to capital outflows or short-term liquidity needs, which can counteract gains in the rupee. However, for now, falling oil prices are cushioning the downside.
Fundamental Outlook: Mixed Signals from US Data
Investors are closely watching upcoming US economic releases to gauge the Federal Reserve’s (Fed) next policy steps. On Thursday, data from the Bureau of Labor Statistics showed that the US Producer Price Index (PPI) rose 2.4% year-over-year (YoY) in April, below expectations and down from the prior month’s 2.7% increase. This softer inflation print supports the idea that price pressures may be easing, potentially reducing the urgency for further monetary tightening.
Additionally, the Initial Jobless Claims for the week ending May 10 were 229,000, in line with estimates but reflecting a modest uptick in unemployment. The Continuing Jobless Claims also increased by 9,000 to reach 1.881 million, indicating a possible slowdown in the labor market.
All eyes are now on Friday’s US data, including Building Permits, Housing Starts, and the preliminary University of Michigan Consumer Sentiment Index. These releases, alongside a speech from Fed official Thomas Barkin, could influence market expectations around rate policy and consequently, USD strength.
Technical Analysis: USD/INR Remains Bearish Below 100-day EMA
From a technical standpoint, USD/INR continues to exhibit a bearish bias, despite short-term rebounds. The pair remains below the 100-day Exponential Moving Average (EMA) at 85.60, a key resistance level. As long as this level caps gains, downside risks persist.
The 14-day Relative Strength Index (RSI) is hovering around the 50-neutral mark, suggesting that the pair may remain in consolidation mode before committing to a clear directional move. Momentum remains subdued, and without a catalyst, traders are likely to adopt a wait-and-see approach.
Support Levels:
- 84.95 – Low from April 28
- 84.61 – Low from May 12
- 84.12 – Low from May 5
A sustained break below 84.95 could pave the way for deeper losses toward 84.61, followed by 84.12, which represents the lowest point in nearly a month. These levels serve as important technical floors for the rupee.
Resistance Levels:
- 85.60 – 100-day EMA
- 86.00–86.05 – Round number zone and upper boundary of the descending trend channel
A break and close above 85.60 could signal a potential bullish reversal, with upside room extending toward 86.05. However, absent a major fundamental shift or Fed surprise, the path of least resistance appears downward.
Broader Factors: Trade Talks and Policy Uncertainty
India’s trade relations are also under scrutiny. Recently, New Delhi has been negotiating a trade agreement with the US, hoping to finalize it within the 90-day tariff pause announced by the US President on April 9. While this could improve bilateral trade flows, any delays or obstacles could temper optimism around the rupee.
In parallel, foreign portfolio investors (FPIs) have continued to pull capital out of Indian markets amid global risk aversion, higher US bond yields, and a stronger dollar backdrop. This capital flight remains a headwind for the INR despite oil-related relief.
Conclusion
In summary, the Indian Rupee’s strength on Friday reflects short-term relief from falling crude oil prices, a critical factor for India’s economy. However, structural pressures from foreign outflows and renewed dollar demand could limit the INR’s upside. Meanwhile, the USD/INR technical setup suggests a cautious stance, with bearish momentum prevailing below key resistance.
As traders look to the upcoming US macro data and Fed communication, volatility in USD/INR may resurface, especially if fresh signals emerge regarding inflation trends or labor market strength. For now, the balance tips in favor of the INR, but external risks continue to linger, capping any extended appreciation. Traders are advised to monitor support-resistance dynamics closely and remain agile in their positioning.
