Indian Rupee falls to new six-month low as fears of an AI slowdown drive global sector rotation

• Several supportive factors help the Indian Rupee extend its gains against the US Dollar.
• Lower oil prices and global sector rotation, driven by concerns over slowing AI spending, have supported the INR.
• Over the past four trading days, FIIs have invested Rs. 32,210.20 crore in Indian equities.

A fresh low near 94.08, the weakest level in almost six months, marks a further decline in USD/INR at the time of writing on Friday, as the Indian Rupee (INR) extends its advance against the US Dollar (USD).

Cheaper oil and steady foreign inflows into Indian equities have helped the Indian currency outperform.

Having touched a fresh low of Rs. 8,191, its weakest level in almost two months, the MCX Crude Oil contract expiring on 19 November has rebounded. At the time of writing, it is trading 1.36% higher near Rs. 8,670. Even so, oil prices remain almost 13.5% below their multi-month high of Rs. 9,972.

When oil prices are low, currencies of economies heavily reliant on imported oil for their energy requirements, including India, tend to outperform.

FII inflows into India accelerate sharply

Strong foreign capital inflows into Indian equities over recent weeks have helped alleviate concerns about dwindling foreign exchange (forex) reserves.

Investment by Foreign Institutional Investors (FIIs) has reached Rs. 32,210.20 crore so far in November.

Global sector rotation has prompted a marked acceleration in FII buying, as the Democrats’ victory in the United States (US) midterm elections fuelled concerns about a slowdown in Artificial Intelligence (AI) spending. A substantial correction in oil prices and strong Q2 earnings from India Inc. have also been key drivers.

Whether FII buying can sustain its momentum largely depends on developments beyond India, market experts caution. The New Indian Express quoted Akash Garg at Choice Wealth as saying: “Much of the capital that left chased the US-led AI and semiconductor trade; some returns only if that trade cools. For flows to turn durable, the rupee must stabilise, crude must stay soft, clarity must emerge on a US–India trade deal, and — above all — Indian corporate earnings must deliver upgrades. For now, this is welcome stabilisation, not yet a trend,”

Markets await US NFP release

October’s US Nonfarm Payrolls (NFP) figures, due at 12:30 GMT, are firmly in investors’ focus. The jobs report is expected to materially influence the outlook for the US Dollar.

Before the US NFP release, the US Dollar Index (DXY) is trading near 101.77, up 0.2%. The index measures the Greenback against a basket of six major currencies.

Only modest employment growth is likely in October’s US jobs report, according to TD Securities. Its economists expect nonfarm payrolls to “remain subdued at 40K after job gains moderated to 29K in September.” However, they add that “despite the subdued, below-consensus print, our forecast would be within the range of breakeven job gains and result in an increase in the three-month moving average,” indicating that underlying momentum is firmer than the headline would suggest. There is also a chance of a stronger outcome: TD says “risks to our payrolls forecast are to the upside,” warning that “seasonal factors could reverse again more than expected and lead to a stronger print.”

USD/INR Remains Under Pressure Below Its 20-Day EMA

Friday’s fall towards 94.08 extends the retreat in USD/INR, leaving the pair beneath its 20-day exponential moving average (EMA) of 94.99. That average continues to constrain gains, maintaining a bearish near-term bias. At 29.29, the latest Relative Strength Index (RSI) reading is in oversold territory. This suggests that, although selling pressure remains dominant, the decline may be overstretched in the short term.

A sustained move back above the 20-day EMA, which provides immediate resistance around 94.99, would be required to temper the prevailing bearish tone. Further losses, meanwhile, could take the pair towards 94.00.

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