Indian Rupee extends opening gains as oil prices crack on US-Iran optimism

FXStreet · 2026-05-29T05:23:45Z
Indian Rupee extends opening gains as oil prices crack on US-Iran optimism
  • The Indian Rupee gains further against the US Dollar as oil prices correct sharply.
  • Oil prices tumble after media reports that the US and Iran have reached a 60-day MoU, pending President Trump’s approval.
  • FIIs turned out to be net sellers on Wednesday.

The Indian Rupee (INR) extends its advance against the US Dollar (USD) in India's afternoon trading hours on Friday after a holiday in India. The USD/INR pair drops to near 95.25 as falling oil prices due to renewed optimism on the United States (US)-Iran deal have strengthened the Indian Rupee.

As of writing, the WTI oil price trades 0.75% lower to near $87, close to the fresh monthly low of $86.29 posted on Thursday. Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to outperform when oil prices decline.

US President Trump’s approval awaited

On Thursday, Axios reported that the US and Iran have reached an agreement over a 60-day Memorandum of Understanding (MoU), which includes “unrestricted” energy flow through the Strait of Hormuz, a critical passage for almost 20% of global energy supply, and the removal of the US blockade on Iranian sea ports. However, the agreement will remain under review by US President Donald Trump, and he will deliver his remarks in a couple of days. The MoU also includes Iran’s commitment not to pursue its nuclear ambitions.

Improved optimism about the US-Iran deal has resulted in a broad risk rally, which was diminished in the last few days due to the exchange of attacks between the US and Iran. On late Wednesday, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it struck US military bases in retaliation for Washington’s attacks near Bandar Abbas airport.

FIIs remain net sellers in Indian stock market on Wednesday

On Wednesday, Foreign Institutional Investors (FIIs) turned out to be net sellers, offloading their stake worth Rs. 1,042.70 crore. Overseas investors continued to be cautious about holding their investments in the Indian stock market, as elevated oil prices have raised concerns over India Inc.’s projected earnings and diminished the government’s spending capacity.

Also, soaring global Artificial Intelligence (AI) trade due to a significant increase in earnings of semiconductors, chip-manufacturing and platform companies has diminished the appeal of Indian stocks in the global market.

Lower US Dollar also hurts USD/INR pair

A sharp decline in the US Dollar as the appeal of safe-haven assets has diminished due to renewed hopes of the US-Iran deal has also weighed on the USD/INR pair. At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% higher to near 99.10, but corrected sharply on Thursday from its over seven-week high of 99.54.

Going forward, market expectations toward the Federal Reserve’s (Fed) monetary policy outlook will be the key driver of the US Dollar.

Technical Analysis: USD/INR falls below 20-day EMA

USD/INR declines to near 95.25 in India's afternoon trading hours. The pair falls slightly below the 20-day exponential moving average (EMA), which is at 95.48, indicating that the near-term tone has turned mildly bearish.

The Relative Strength Index (RSI) shifts into the 40.00-60.00 zone after failing to hold above 60.00, which indicates that the bullish momentum has concluded; however, the bullish bias remains intact.

On the downside, the immediate support is at 95.00; a daily close below that level would open the door for further downside towards the May 11 low at 94.42. Looking up, the pair could aim to revisit the all-time high of 97.09 if it manages to advance above 96.00.

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

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.