USD/INR pulls back significantly from record peaks as RBI restricts banks' overseas exposure

Indian Rupee Strengthens as RBI Imposes New Forex Limits

At the start of the week, the Indian Rupee (INR) rebounded against the US Dollar (USD), following the Reserve Bank of India's (RBI) decision to introduce stricter controls on banks' foreign exchange positions. This move led to a decline of over 1% in the USD/INR rate, bringing it close to 94.00, after the pair had reached a record high of 95.45 last Friday.

According to Reuters, the RBI announced late Friday that banks must limit their net open rupee positions in the forex market to $100 million by the end of each trading day, with full compliance expected by April 10.

While these new restrictions are likely to provide only temporary relief for the rupee, ongoing challenges such as elevated oil prices and persistent foreign capital outflows could soon resume downward pressure on the currency.

Rising Oil Prices Amid US-Iran Tensions

Oil prices surged in early Monday trading, with WTI crude climbing more than 2.5% to approach $102.50. This rally was fueled by concerns that the United States might launch ground operations in Iran.

The Wall Street Journal reported on Thursday that the US Department of Defense is weighing the deployment of an additional 10,000 troops to Iran for potential ground assaults. In response, Iran's parliamentary speaker Mohammad Bagher Ghalibaf warned, as reported by the BBC, that any US incursion would be met with severe retaliation.

Countries like India, which depend heavily on imported oil, often see their currencies weaken when global energy prices rise sharply.

Foreign Investors Withdraw Amid Middle East Unrest

Foreign Institutional Investors (FIIs) have been steadily reducing their holdings in Indian equities as the conflict in the Middle East drives investors toward safer assets like the US Dollar.

Throughout the current month, FIIs have consistently been net sellers, divesting a total of Rs. 1,11,376.83 crore from the Indian market.

Market Awaits Key US Economic Data

This week, investors are preparing for heightened volatility in the US Dollar, as several important US labor market and ISM Purchasing Managers’ Index (PMI) reports are set for release.

Particular attention will be on the March Nonfarm Payrolls (NFP) figures, which are expected to shape expectations regarding the Federal Reserve’s future policy direction.

USD/INR Technical Overview: Pullback from Record High

The USD/INR pair is currently trading near 94.00, having retreated from last week's all-time high of 95.45. Despite this correction, the short-term outlook remains positive, as the price stays well above the ascending 20-day Exponential Moving Average (EMA) at 93.23. The ongoing pattern of higher closes since early November continues to support the upward trend, even after the recent rejection above 95.35.

The 14-day Relative Strength Index (RSI) has eased from overbought territory to around 66, signaling that bullish momentum is still strong but beginning to moderate.

• Support: Immediate support is found at the 20-day EMA near 93.23. A break below this level could lead to further declines toward the January peak at 92.50, with additional support at 92.00, which coincides with a previous consolidation zone.
• Resistance: On the upside, resistance is located at the recent high of 95.45. A daily close above this point could pave the way for a move toward the 96.00 region. As long as the price remains above 93.23, any pullbacks are likely to be viewed as part of a continued bullish trend.

(This technical analysis was generated with assistance from an AI tool.)