USD/INR likely to open cautiously on Friday amid easing Oil prices

USD/INR Pair Sees Modest Gains Amid Market Closures

The USD/INR currency pair finished Wednesday with slight advances, settling near 90.55. On Thursday, financial markets in India—including stocks, commodities, and currencies—are closed in observance of the Mumbai Municipal elections.

Friday Outlook: Oil Prices and Rupee Sentiment

Looking ahead to Friday, the Indian Rupee (INR) may experience mild buying interest, supported by a notable drop in oil prices. West Texas Intermediate (WTI) crude fell sharply to around $59.70, retreating from a recent three-month peak of $62.20. This decline followed reassurances from US President Donald Trump, who eased concerns over potential military action in Iran by stating that efforts would be made to prevent further violence against protesters.

Geopolitical Developments Impacting Markets

Earlier this week, President Trump had warned of possible strikes against Iran’s leadership in response to the execution of protesters during widespread unrest. However, the reduction in tensions has helped alleviate worries about disruptions to global supply chains.

Oil-Importing Economies Face Pressure

Countries that depend heavily on oil imports for their energy requirements often see their currencies weaken when oil prices are elevated.

Indian Rupee’s Fragile Prospects Amid Trade Uncertainty

In general, the prospects for the Indian Rupee remain uncertain, largely due to the lack of progress on a trade agreement between the US and India. Negotiators from both countries reported constructive discussions earlier this week, with another round of talks expected in February. While this could benefit the Rupee, it has yet to boost foreign investor confidence in the Indian equity markets.

Foreign Investors Remain Cautious

Despite some optimism regarding US-India trade negotiations, Foreign Institutional Investors (FIIs) have continued to withdraw from Indian equities. Data from the NSE shows that on Wednesday alone, FIIs sold holdings worth Rs. 4,781.24 crore. Throughout January, FIIs have been net sellers in nine out of ten trading sessions, reducing their investments by a total of Rs. 21,706.27 crore.

US Dollar Strengthens Ahead of Fed Meeting

Meanwhile, the US Dollar (USD) remains strong as markets anticipate the Federal Reserve will hold off on further monetary easing at its upcoming policy meeting. At the time of writing, the US Dollar Index (DXY), which measures the currency against a basket of six major peers, is trading near its monthly high of 99.26.