Indian Rupee extends gains as US midterm elections weigh on US Dollar

US Dollar underperformance allows the Indian Rupee to extend its rally.
A Senate majority goes to Democrats, who also lead the House vote.
A Democratic victory does not imply structural US Dollar weakness, in ING’s view.

Wednesday brings further gains for the Indian Rupee (INR) against the US Dollar (USD). Early results from the United States (US) midterm elections suggest Democrats are on course to win both the House and the Senate.

USD/INR falls 0.1% to around 94.60 in opening trade. The decline comes as the US Dollar lags its peers. At the time of writing, the US Dollar Index (DXY), a measure of the Greenback against six major currencies, is 0.4% lower at around 101.48. Despite recouping substantial intraday losses following a slide to near 101.25, the DXY remains sharply down.

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50 Senate seats: US midterm election count

With counting continuing, Democrats have secured 50 seats for a Senate majority, according to the BBC. Results are in for 294 of the House’s 435 seats, with Democrats ahead on 184 seats. A party requires 218 seats to secure an outright majority.

A Democratic sweep of the House of Representatives and the Senate is expected to affect the US Dollar significantly.

In an earlier warning, ING said that “fears of tougher regulation could weigh on Artificial Intelligence (AI) stocks (we’ve recently seen how that can hit the greenback), while markets could price in greater risks of decision-making gridlock around issues such as government funding and the debt ceiling.”

Nevertheless, ING dismissed concerns about a structural change in the Dollar’s direction. The bank explained that the greenback “continues to respond predominantly to the Fed story, which shouldn’t face an immediate and direct impact from the midterm result”.

October NFP leads US data agenda

Friday’s October Nonfarm Payrolls (NFP) report is a key focus among this week’s US economic releases. Investors will scrutinise the figures, which are likely to have a substantial influence on expectations for Federal Reserve (Fed) interest rates.

Before the official US jobs report, attention turns to October’s US ADP Employment Change figures, due later in the day at 13:15 GMT. Private-sector job creation is expected to total 69K, down from September’s 90K.

94.7405: USD/INR Technical Outlook

At 94.7405 on the daily chart, USD/INR retains a bearish short-term bias. Spot remains below the 20-day exponential moving average (EMA) of 95.1559. Having pulled back from recent highs, the pair continues to face a ceiling at this dynamic resistance. A Relative Strength Index (RSI) reading around 37 points to persistent selling pressure, although it has not yet reached oversold territory.

The 20-day EMA near 95.16 provides the first upside resistance. Only a daily close above that level would ease the prevailing downside bias and open the way for a recovery. The current dataset identifies no clear structural support levels. Traders may therefore view recent swing lows and psychological levels below the market as possible demand zones. Sellers retain the advantage under the current configuration while the price remains beneath the 20-day EMA.

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

Indian Rupee: Frequently Asked Questions

Indian Rupee: main exchange-rate drivers

External developments have a particularly strong influence on the Indian Rupee (INR). Key drivers include Crude Oil prices, given India’s heavy reliance on imported Oil, and the US Dollar’s value, as most trade is denominated in USD. Foreign investment levels also matter. Other major influences are the interest rates set by the Reserve Bank of India (RBI) and its direct intervention in FX markets to stabilise the exchange rate.

Indian Rupee: the Reserve Bank of India’s policy influence

To support trade, the Reserve Bank of India (RBI) intervenes actively in currency markets to keep the exchange rate stable. Interest-rate adjustments are another policy tool, used to keep inflation at its 4% target. Rate increases typically support the Rupee through the ‘carry trade’. Under this strategy, investors borrow in lower-interest-rate countries and invest the funds in countries offering relatively higher rates, earning the difference.

Indian Rupee: macroeconomic influences on its value

Inflation, interest rates, GDP growth, the trade balance and foreign investment inflows all shape the Rupee’s value. Faster economic growth can attract additional overseas investment and increase demand for the currency. A narrowing trade deficit will ultimately strengthen the Rupee. Higher interest rates also offer support, particularly when measured in real terms, after subtracting inflation. In a risk-on environment, larger inflows of Foreign Direct and Indirect Investment (FDI and FII) can provide a further boost.

Indian Rupee: inflation’s exchange-rate effects

When inflation rises, especially above levels in India’s peer economies, it generally weighs on the Rupee by reflecting devaluation caused by excess supply. Higher inflation also makes exports more expensive. This leads to additional Rupee selling to fund foreign imports, putting further pressure on the currency. However, rising inflation typically prompts the Reserve Bank of India (RBI) to increase interest rates. The resulting demand from international investors can support the Rupee. Lower inflation has the opposite effect.