The Indian Rupee gained sharply against the US Dollar on Friday as growing optimism over a possible agreement between the United States and Iran pushed global oil prices lower.
The USD/INR currency pair fell near 95.12 after reports suggested that the US and Iran are expected to sign a Memorandum of Understanding (MoU) in Geneva on Sunday. The potential agreement has raised hopes of easing tensions in the Middle East and reopening the Strait of Hormuz, one of the world’s most important oil shipping routes.
Lower oil prices are generally positive for India because the country relies heavily on imported crude oil to meet its energy needs. During Friday’s trading session, the MCX crude oil contract for June delivery dropped nearly 3.8%, reaching its lowest level in more than seven weeks.
Investor confidence also improved after US President Donald Trump said on Thursday that planned military strikes on Iran had been canceled as negotiations between both countries entered their final stages. Trump stated that discussions had been agreed upon in principle and that a formal signing would take place soon.
The possibility of a peace agreement also boosted Indian stock markets. The Nifty 50 index ended the day nearly 2% higher at around 23,623 points.
At the same time, reports indicated that India could face a wider fiscal deficit this year because of higher energy subsidy costs linked to recent Middle East tensions. According to market estimates, the fiscal deficit could widen to 4.8% of Gross Domestic Product, above the government’s earlier target of 4.3%. However, Indian authorities have not officially confirmed the report.
Meanwhile, India’s inflation data for May showed consumer prices rising 3.93% year-on-year, compared with 3.48% in April. Although inflation moved higher, it remained slightly below market expectations of 4%.
Analysts believe the inflation data is unlikely to significantly change expectations for the Reserve Bank of India’s monetary policy, especially if oil prices continue to ease.
Foreign Institutional Investors (FIIs) have continued selling Indian equities throughout June. So far this month, overseas investors have sold shares worth more than Rs. 64,000 crore due to concerns over corporate earnings and uncertainty caused by geopolitical tensions in the Middle East.
From a technical perspective, analysts say the USD/INR pair remains under pressure in the short term. The pair is trading below its 20-day Exponential Moving Average, which signals continued weakness for the US Dollar against the Rupee.
Key resistance is seen near 95.41 and 95.96, while support levels are located around 94.79 and 94.03. A further drop below these support levels could strengthen the bearish outlook for the pair.
