Indian Rupee hits an all-time low as tensions escalate between the US and Iran. What could happen going forward?

Market Fundamentals Overview

US Dollar (USD) Insights

The US dollar experienced a broad surge, fueled by increased demand for safe-haven assets following the escalation of tensions between the US and Iran over the weekend. However, a significant factor behind the dollar’s strength was the market’s reassessment of the timing for potential interest rate cuts, which now appear less imminent than previously anticipated.

Rising oil prices are expected to contribute to higher inflation, and Monday’s ISM Manufacturing PMI report highlighted the market’s overly dovish stance on the US economy. The data came in strong for a second month in a row, dispelling the notion that the previous reading was an anomaly.

Additionally, the prices index climbed to its highest point since 2022, signaling persistent inflationary pressures. As a result, traders have scaled back expectations for rate cuts, with total projected easing by year-end now at approximately 44 basis points, down from 58 basis points last Friday.

Indian Rupee (INR) Overview

From a broader perspective, the Indian Rupee continues to exhibit a bearish trend against the US dollar. This week, negative momentum intensified, largely due to heightened risk aversion in global markets.

Furthermore, disruptions in oil supply through the Strait of Hormuz and a renewed spike in global oil prices have raised concerns about adverse effects on India’s economy. Nearly 90% of India’s crude oil needs are met through imports, with 55% sourced from the Middle East.

If tensions ease, the rupee could see a short-term recovery, presenting an opportunity for traders to buy into the USDINR pair’s dips, as the primary upward trend is likely to persist.

USDINR Technical Analysis – Daily Chart

Examining the daily timeframe, the USDINR pair has been gradually climbing, with buyers entering near the lower boundary of the channel. The recent conflict between the US and Iran triggered a sharp move higher. The next key resistance is near the 93.00 level, where sellers may become more active, aiming for a reversal back toward the lower trendline. Conversely, a breakout above this area could encourage buyers to target new highs.

USDINR Technical Analysis – 4-Hour Chart

On the 4-hour chart, the price recently surpassed its previous record high before pulling back as selling pressure emerged. This timeframe offers limited additional insights, suggesting a closer look at lower timeframes is necessary for more detail.

USDINR Technical Analysis – 1-Hour Chart

The 1-hour chart reveals a clear upward trendline supporting the ongoing bullish momentum. Buyers are likely to continue relying on this trendline, managing risk just below it, as they aim for the 93.00 mark. Sellers, meanwhile, will be watching for a breakdown below the trendline to initiate positions targeting a move toward the 91.00 level.

Key Events Ahead

• Today: US ADP employment data and ISM Services PMI
• Tomorrow: Latest US Jobless Claims figures
• Friday: US Non-Farm Payrolls (NFP) report

However, these economic releases may have a muted impact this week, given the ongoing geopolitical developments between the US and Iran.