The Indian Rupee (INR) remains under pressure on Wednesday, trading at a two-month low against the US Dollar (USD) due to an elevated demand for the Greenback as geopolitical tensions in the Middle East rise and crude oil prices increase. The USD/INR pair is trading at 86.63 after reaching a session high of 86.75.
Geopolitical Turmoil Drives Safe-Haven Demand
The upsurge of the Iran-Israel conflict nowadays is stressing global financial markets. As Israeli forces target Iranian military and suspected nuclear sites, and Iran responds with drone and missile strikes, market liquidity sentiment is decidedly risk-averse.
The situation has disrupted life in large Iranian cities, created fuel shortages, and caused speculation that the United States may intervene militarily. The prevailing uncertainty is sending flows to safe-haven assets, such as the US Dollar, and is weighing heavily on market currencies, such as the Rupee.
INR Weakens Amid Crude Surge, Fed Uncertainty
Rising crude oil prices that are worsening the trade balance for India are putting further downward pressure on the Rupee. At the same time, investors are being tentative since later on Wednesday the Federal Reserve will announce a monetary policy decision as speculation mounts that they will remain on hold at 4.25% to 4.50%, which is expected. If this is to be the case, forward guidance on growth, inflation, and interest rate path will be extremely important.
While the Rupee has a weaker outlook, India has relatively strong forex reserves and is therefore in a better position to withstand this pressure. A recent report from the Bank of Baroda noted that the INR is expected to trade in the 85.25 to 86.25 range unless geopolitical risks escalate further.
RBI Eyes Monetary Transmission, Domestic Stability
At home, the Reserve Bank of India (RBI) is consulting with market participants regarding a potential adjustment to the overnight call money rate, which has, and remains, below the repo rate due to surplus liquidity. While this supports cheap credit for the time being, there is concern for inflation if left uncontrolled.
Nevertheless, India’s macros remain favorable. Ratings agency ICRA forecasts FY26 GDP growth of greater than 6.5% and Consumer Price Index (CPI) inflation of approximately 4.2%.
Technical Outlook
USD/INR has broken a multi-week symmetrical triangle on the 4-hour chart, which is a signal for bullish continuation. The 21-period moving average is turning upward, providing dynamic support just above 86.19. Our momentum indicators show the RSI is at 68.61 and the ROC is modestly positive, as it seems, momentum is still positive. The next area of resistance is 87.00, and if we hold above 86.60, it should trigger more upside. Support is at 86.20 and 85.90.
Conclusion
Due to continuing tensions in the Middle East, uncertainty regarding Federal Reserve policy, and high oil prices, there is a short-term bias for USD/INR to be bullish. Investors may see dip buying opportunities in the USD/INR as long as the pair stays above key support levels and the technical breakout is intact.
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