• The Indian Rupee rebounds against the US Dollar on hopes of peace in the Middle East again.
• Iran confirms receiving a 10-day ceasefire proposal from the US by mediators.
• FIIs have remained net sellers in the last six trading days.

The Indian Rupee (INR) opens higher against the US Dollar on Tuesday. The USD/INR pair corrects to near 96.34 from its two-month high of 96.76 posted on Monday, as fresh hopes of de-escalation in military aggression between the United States (US) and Iran have offered support to the Indian currency.

The emergence of hopes for Middle East peace has resulted in a pause in the oil price rally, a scenario that offers support to currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.

In the opening trade, the MCX Crude Oil contract expiring on August 19 is marginally down to near Rs. 7,945. On Monday, the crude oil price corrected sharply after posting a fresh five-week high at Rs. 8,158.

Iran receives 10-day ceasefire proposal with US

On Monday, a senior Iranian official confirmed receiving a proposal of a 10-day cessation of strikes from mediators to find ways to revive the interim deal with the US. This led to financial markets regaining confidence that negotiations between nations are still active.

Earlier in the day, an Axios report also showed that US President Donald Trump will either accept the 10-day ceasefire with Iran and resume negotiations toward an interim deal or will call for a joint full-scale military campaign with Israel against Iran.

Renewed hopes for peace in the Middle East will likely keep oil prices’ upside limited; however, the continuation of attacks between the US and Iran would increase global volatility further.

FIIs continue dumping their stake in Indian stock market

Foreign Institutional Investors (FIIs) are consistently paring their stake in the Indian stock market, extending their selling streak for the sixth trading day on Monday. In the last six trading days, overseas investors have cumulatively sold their stake worth Rs. 10,240.80 crore.

The sentiment of overseas investors toward the Indian stock market appears to have turned cautious amidst the ongoing Q1FY27 earnings season. FIIs' confidence in the Indian stock market is expected to deteriorate further as the administration has stated that it has no plans to scrap Long-Term Capital Gains (LTCG) tax on investors, a key reason behind the consistent outflow of foreign funds from the Indian equity market.

"At present, there is no such proposal under consideration. The tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process, and legislative revisions are made after taking into consideration the macroeconomic parameters," Minister of State for Finance Pankaj Chaudhary said, The New Indian Express reported.

Technical Analysis: USD/INR rises towards 97.00

USD/INR trades lower at around 96.34, but is maintaining a bullish near-term bias as spot holds above the 20-period exponential moving average (EMA) at 95.73. The pair has been grinding higher over recent sessions, and the Relative Strength Index (RSI) at 62 reinforces constructive momentum without yet signaling overbought conditions.

On the downside, immediate support is offered by the 20-period EMA at 95.73, which acts as a dynamic floor for any corrective dips. Looking up, the pair aims to revisit the all-time high at around 97.10.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Indian economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.