The Indian Rupee rallied on Thursday as markets reacted positively to the US-Iran deal, easing geopolitical tensions and boosting risk appetite. The US dollar weakened broadly, with Fed rate hike expectations trimmed.
Market Reaction to US-Iran Deal
The US dollar weakened across major pairs on Thursday after former President Donald Trump announced the cancellation of planned military strikes on Iran and signaled a deal would be finalized soon. The news spurred a rally in risk-sensitive assets, including the Indian Rupee (INR), as geopolitical uncertainty eased.
Fed funds futures markets adjusted swiftly, with year-end rate hike expectations declining to 16 basis points from 24 bps prior to the announcement. The shift reflects reduced urgency for monetary tightening amid falling oil prices and easing inflation concerns.
INR Technical and Fundamental Outlook
The INR strengthened sharply against the USD, extending gains as optimism around the US-Iran resolution grew. The currency's correlation with oil prices remains a key driver, given India's heavy energy import bill. With Brent crude falling toward pre-conflict levels and the Strait of Hormuz expected to reopen, the Rupee could maintain upward momentum in the near term.
However, structural headwinds persist. The USD/INR pair retains a bearish long-term bias, with traders likely targeting key technical levels for fresh long-dollar entries. A more hawkish-than-expected Federal Reserve stance at the upcoming FOMC meeting could revive demand for the greenback.
Technical Analysis: USD/INR
Daily Timeframe: The pair broke below a critical trendline on Thursday, signaling short-term bearish momentum. Initial support is seen near 94.00, with sellers poised to target deeper levels if risk sentiment stays positive.
4-Hour Chart: Price action confirmed the breakdown, with the market consolidating below the trendline. Further downside is likely unless a bullish reversal emerges.
1-Hour Chart: A minor downward trendline defines near-term resistance. Buyers would need a sustained move above this level to challenge the 96.00 handle.
Upcoming Catalysts
Markets will focus on the FOMC rate decision on Wednesday, where the Fed is expected to hold rates steady and remove its easing bias. The accompanying dot plot and economic projections may offer clues on future policy trajectory. Thursday's US jobless claims data could also influence rate expectations.
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