Strong foreign inflows underpin Indian Rupee outperformance despite surging US Dollar

• A new six-month high marks the Indian Rupee’s advance against the US Dollar.
• Indian equities attract further investment from FIIs.
• Prospects of a larger Fed rate increase lift the US Dollar above its other peers.

Strong overseas investment flows into Indian equities support further gains in the Indian Rupee (INR) against the US Dollar (USD) on Thursday, with a fresh six-month low recorded. As the Indian currency outperforms, USD/INR declines towards 93.65.

With global Artificial Intelligence (AI) stocks facing fresh headwinds and energy prices declining, “India” has gained support as a competitive investment proposition. Against this backdrop, Foreign Institutional Investors (FIIs) are adding to their holdings in Indian equities.

Cumulative investment by foreign investors stands at Rs. 65,735.57 crore. FIIs have been net buyers on every trading day so far in November apart from the Diwali Muhurat session, which took place on Sunday, 08 November.

Global AI stocks face fresh headwinds

The Democrats’ victory in the United States (US) midterm elections raised concerns over whether spending on AI infrastructure would continue, sending AI-related shares into turmoil.

AI shares could now face further pressure from fears that Nvidia’s CEO Jensen Huang may be replaced. Those fears follow New York Times (NYT) reports of his extramarital affair with alleged Chinese spy Alice Huang, alongside rumours of a relationship with his subordinate Kimberly Powell, Nvidia’s vice president of health care.

According to The Wall Street Journal (WSJ), Nvidia’s board was preparing to remove the CEO, with the newspaper also highlighting the potential for volatility over the next 48 hours.

Net energy importers gain support from lower oil prices

Hopes that the US and Iran would choose an agreement over renewed military attacks have weighed on oil prices. The decline has enhanced the appeal of currencies in economies such as India, where oil imports account for a large share of energy needs.

At the time of writing, a 2.42% decline leaves the MCX Crude Oil contract expiring on 19 November slightly below Rs. 8,000.

Rupee gains persist despite US Dollar strength

Despite the US Dollar’s substantial advance over the past few trading days, the Indian currency continues to outperform it. During Asian trading, a new 18-month high of around 103.06 is reached by the US Dollar Index (DXY), which measures the Greenback against six major currencies.

Financial markets are considering the prospect of a larger interest rate increase at the Federal Reserve’s (Fed) December policy meeting, lending support to the US Dollar.

A December increase is now highly likely in TD Securities’ assessment: the bank says the “strong upside surprise in the Consumer Price Index (CPI) data makes a December hike all but certain,” and reiterates that the data “certainly seals a Dec rate hike by the Fed.” The question has turned to the size of the move, with strategists observing that “after Waller's speech on Tuesday, the debate has now shifted to whether the FOMC will go 25 or 50bps,” while Governor Waller’s remarks before the CPI release have intensified attention on a possible “catch-up” adjustment. TD Securities frames the choice as a “catch-up 50bps rate hike in December, or whether to maintain course with a 25bps rate increase and provide strong guidance toward a potential January follow-through.” Its strategists’ current position remains that “we still favor a 25bp hike with a rising risk of another hike in January.”

USD/INR Technical Analysis Signals Continued Near-Term Weakness

Trading at 93.69 on the daily chart, USD/INR retains a bearish near-term outlook while the spot price remains beneath the 20-period exponential moving average (EMA) at 94.58.

Although the Relative Strength Index (14), at around 24, points to oversold conditions that could temper further losses, it does not yet confirm a reversal. The break below this short-term trend measure indicates that sellers still have the upper hand.

Any meaningful recovery first faces immediate resistance at the 20-day EMA of 94.5812, which is limiting rebound attempts. On the downside, a further decline could take the pair towards 93.00.

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