USD/INR drops sharply at the opening as tensions in the Middle East ease

Indian Rupee Strengthens as Middle East Tensions Ease

On Wednesday, the Indian Rupee (INR) opened stronger against the US Dollar (USD) following a market closure for Shri Mahavir Jayanti. The USD/INR pair dropped to approximately 93.65, retreating from its record high of 95.22 set on Monday. This improvement is largely attributed to a reduction in geopolitical risks in the Middle East, as both the United States and Iran have expressed intentions to resolve their conflict, boosting investor confidence in riskier assets.

US and Iran Signal Willingness to Resolve Conflict

Iranian President Masoud Pezeshkian informed European Union Council President António Costa on Tuesday that Iran is prepared to end hostilities with the US, provided there are assurances against future aggression, according to Iranian state media. This statement followed US President Donald Trump’s announcement that the US is open to ending the conflict with Iran, even though the Strait of Hormuz—an essential route for nearly 20% of global oil shipments—remains closed. Trump noted that reopening the strait would require extending military operations beyond his initial four-to-six-week timeframe, as reported by the Wall Street Journal.

Signs of easing tensions between the US and Iran have reduced demand for safe-haven currencies like the US Dollar. The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, hovered near Tuesday’s low of 99.85 at the time of writing. The index had declined by nearly 0.8% on Tuesday after reaching a new ten-month peak around 100.65.

Foreign Investors Continue to Reduce Exposure in Indian Equities

Emerging market currencies such as the Indian Rupee depend significantly on foreign capital to maintain financial stability. Persistent withdrawals by foreign investors from the Indian equity market have weighed heavily on the Rupee in recent months.

In March, Foreign Institutional Investors (FIIs) sold Indian stocks worth Rs. 1,22,539.89 crore, largely due to concerns over the Middle East conflict. The expectation that rising oil prices would negatively impact Nifty 50 earnings for Q4FY2025-26 contributed to this outflow.

Key US Economic Data on the Horizon

Market participants are now turning their attention to upcoming US economic releases, including the ADP Employment Change, ISM Manufacturing PMI for March, and February’s Retail Sales, all scheduled for release during the North American session. Economists anticipate that the US private sector added 40,000 jobs in March, down from 63,000 in February.

The ISM Manufacturing PMI is projected to edge up to 52.5 from 52.4 previously, while Retail Sales are expected to have increased by 0.5% following a 0.2% decline in January.

USD/INR Technical Outlook: Pullback from Record Highs

The USD/INR pair saw a sharp correction from its all-time high of 95.22, dropping to around 93.65 at Wednesday’s open. Despite this pullback, the ongoing pattern of higher highs and higher lows since the 90s range points to a continued bullish trend. The 20-day Exponential Moving Average (EMA), currently near 93.13, reinforces the positive outlook.

The 14-day Relative Strength Index (RSI) has slipped below 60.00 after spending considerable time in the 60.00-80.00 range, suggesting a pause in bullish momentum, though the upward bias remains.

Immediate support is seen at the 20-day EMA around 93.13, with additional support at previous highs in the 92.00-92.35 zone. A break below this range could weaken the bullish structure and pave the way toward the March 5 low of 91.35. On the upside, the record high of 95.22 stands as a key resistance level; a clear move above this point could set the stage for a further rally toward 96.00.