- USD/INR fell to a two-week low near 95.30 as the Indian rupee extended its recent gains.
- The US dollar weakened after the Federal Reserve's policy decision failed to convince markets that further rate hikes remain likely.
- Investors are now focused on the Reserve Bank of India's policy meeting on August 5.
The Indian rupee strengthened against the US dollar on Friday, pushing USD/INR to its lowest level in more than two weeks as the greenback remained under pressure following the Federal Reserve’s latest policy meeting. The pair traded near 95.30, extending a week-long decline as investors reassessed the outlook for US interest rates and shifted their attention to next week’s Reserve Bank of India (RBI) policy decision.
The US dollar came under renewed selling pressure after Fed Chair Kevin Warsh reiterated the central bank’s commitment to restoring price stability but stopped short of signalling further interest rate hikes. Markets interpreted the comments as less hawkish than expected, weighing on the dollar despite persistent inflation concerns.
Why Is USD/INR Falling Today?
The latest decline in USD/INR has been driven primarily by broad-based weakness in the US dollar rather than a major change in India’s domestic outlook.
Following the Federal Reserve’s policy announcement, investors questioned whether US policymakers are prepared to tighten monetary policy further if inflation remains elevated. The shift in expectations reduced demand for the greenback and helped lift emerging market currencies, including the Indian rupee.
RBI Policy Decision in Focus
Attention is now turning to the Reserve Bank of India’s monetary policy meeting on August 5, where economists broadly expect policymakers to leave the benchmark repo rate unchanged at 5.25%.
India’s inflation remains within the RBI’s target range despite concerns about rising commodity prices and weather-related risks. As a result, markets expect the central bank to maintain its current policy stance while monitoring global inflation and domestic growth conditions.
Any change in the RBI’s guidance could influence the next move in the rupee.
Higher Oil Prices Could Limit Rupee Gains
Despite the rupee’s recent strength, higher crude oil prices continue to pose a risk to further appreciation.
Ongoing tensions between the United States and Iran have kept energy markets supported, raising concerns about global supply disruptions. As one of the world’s largest crude oil importers, India is particularly vulnerable to sustained increases in oil prices, which can widen the trade deficit and weigh on the rupee.
If oil prices remain elevated, they could offset some of the gains generated by the weaker US dollar.
USD/INR Technical Analysis
USD/INR is trading around 95.30 after breaking below its 20-day exponential moving average near 95.80, reinforcing the pair’s short-term bearish momentum.
Immediate support is seen around 94.80, the July low, while resistance remains near 95.80. A recovery above that level could allow the pair to retest 96.00, but as long as USD/INR remains below the 20-day EMA, the near-term bias favours further downside.
USD/INR Outlook
The near-term outlook for USD/INR remains tilted to the downside as markets continue to price in a softer US dollar following the Federal Reserve meeting.
However, traders are likely to remain cautious ahead of the RBI’s policy decision next week, while developments in global oil prices and Middle East tensions could continue to influence sentiment toward the Indian rupee.
USD/INR is declining as the US dollar weakens following the Federal Reserve’s latest policy meeting, boosting demand for the Indian rupee.
The Reserve Bank of India is scheduled to announce its next monetary policy decision on August 5, with markets expecting interest rates to remain unchanged at 5.25%.
India imports most of its crude oil requirements. Higher oil prices increase import costs and can widen the country’s trade deficit, which typically puts pressure on the Indian rupee.
