A mix of positive and negative factors: After three consecutive days of gains, the rupee faces the crucial test of non-farm payrolls data; can it hold the 95 mark?
2026-07-02 16:43:50
The Indian rupee opened slightly higher against the dollar on Thursday, with the dollar trading above 95.00 against the rupee. This followed a three-day winning streak.
Progress in US-Iran negotiations pushed oil prices lower, which is beneficial for India, which is heavily reliant on oil imports. However, expectations of a Federal Reserve rate hike supported a strong dollar and US Treasury yields, and foreign investors turned to net selling on the first trading day of July, limiting the rupee's upside potential.
Market focus has shifted to tonight's US non-farm payrolls report, the results of which will determine the short-term direction of the rupee.
The Indian rupee opened higher on Thursday, after falling sharply in the previous session. Positive progress in US-Iran negotiations pushed crude oil prices down. For economies like India that heavily rely on oil imports to meet their energy needs, a low oil price environment typically favors a stronger currency, as reduced import bills directly alleviate current account pressures.
However, the positive effects of falling oil prices were partially offset by two factors: first, expectations of a Fed rate hike supported the dollar's continued high level; second, foreign investors turned to net selling on the first trading day of July, which dampened market sentiment for the rupee.
In addition, reports from well-known institutions indicate that the Reserve Bank of India may sell dollars in pre-market open market operations to support the rupee, suggesting the government's focus on exchange rate stability.
A spokesperson for the Qatari Foreign Ministry said on Wednesday that the US and Iran had made "positive progress" on issues related to the Islamabad memorandum of understanding, with negotiations completed after separate meetings between Qatari and Pakistani mediators and both sides. The talks are expected to focus on core issues such as the future of the Strait of Hormuz, unfreezing Iranian funds, and Iran's nuclear program.
Both sides confirmed that they will continue negotiations, with the next meeting expected to be arranged after the funeral of Iran's former Supreme Leader (July 4-9).
For the Indian rupee, the positive progress in the US-Iran negotiations is mainly transmitted through the oil price channel—the expectation of the resumption of navigation in the Strait of Hormuz has lowered global oil prices, thus benefiting the rupee. However, the lack of a fundamental agreement means that the geopolitical risk premium will not completely subside.
Expectations of a Federal Reserve rate hike continue to support the dollar and U.S. Treasury yields.
The CME FedWatch tool shows that the market believes there is nearly an 85% probability of the Federal Reserve raising interest rates at least once this year, a scenario that is favorable for the US dollar and income-generating assets. The 10-year US Treasury yield is trading around 4.49%, up more than 2.5% from Monday's closing price of 4.37%. The US dollar index is trading around 101.30.
The market is closely watching tonight's June non-farm payroll report, which is expected to show an increase of 110,000 jobs, lower than the 172,000 in May, with the unemployment rate expected to remain at 4.3%.
If the data is strong, expectations for a Fed rate hike will be further solidified, and the dollar may break through its recent high; if the data is weak, expectations for a rate hike will cool, and the rupee is expected to gain more breathing room.
Foreign institutional investors turned net sellers on the first trading day of July, reducing their holdings of Indian stocks by approximately 1.14 billion rupees.
This trend is noteworthy – despite international oil prices falling back to pre-Middle East conflict levels, overseas investors continue to be net sellers of Indian assets, reflecting a global tendency for "safe-haven repatriation" of funds in anticipation of Fed rate hikes, as well as a reassessment of the valuation and earnings prospects of the Indian market.
The sustainability of foreign capital outflows will be a key variable in the medium-term trend of the rupee.
The USD/RUB pair is currently trading around 95, having returned above the 20-day exponential moving average (94.84), indicating a short-term bullish signal. The Relative Strength Index (RSI) is around 55, showing a neutral to slightly positive trend rather than momentum exhaustion, suggesting that as long as the price holds above the short-term moving average, pullbacks may still attract buying interest.
Support levels: The first support is at the 20-day moving average of 94.85, with further support from the structural trendline around 94.
Regarding resistance: the main resistance is located at the July 1 high of 95.30, and the next target after breaking through is the June 4 high of 95.80.
(USD/RUB daily chart, source: EasyForex)
At 16:20 Beijing time on July 2, the US dollar was trading at 95.26/27 against the rupee.
Progress in US-Iran negotiations pushed oil prices lower, which is beneficial for India, which is heavily reliant on oil imports. However, expectations of a Federal Reserve rate hike supported a strong dollar and US Treasury yields, and foreign investors turned to net selling on the first trading day of July, limiting the rupee's upside potential.
Market focus has shifted to tonight's US non-farm payrolls report, the results of which will determine the short-term direction of the rupee.
Oil price drop: the biggest boon for the rupee
The Indian rupee opened higher on Thursday, after falling sharply in the previous session. Positive progress in US-Iran negotiations pushed crude oil prices down. For economies like India that heavily rely on oil imports to meet their energy needs, a low oil price environment typically favors a stronger currency, as reduced import bills directly alleviate current account pressures.
However, the positive effects of falling oil prices were partially offset by two factors: first, expectations of a Fed rate hike supported the dollar's continued high level; second, foreign investors turned to net selling on the first trading day of July, which dampened market sentiment for the rupee.
In addition, reports from well-known institutions indicate that the Reserve Bank of India may sell dollars in pre-market open market operations to support the rupee, suggesting the government's focus on exchange rate stability.
US-Iran negotiations: Positive signs continue, but core differences remain.
A spokesperson for the Qatari Foreign Ministry said on Wednesday that the US and Iran had made "positive progress" on issues related to the Islamabad memorandum of understanding, with negotiations completed after separate meetings between Qatari and Pakistani mediators and both sides. The talks are expected to focus on core issues such as the future of the Strait of Hormuz, unfreezing Iranian funds, and Iran's nuclear program.
Both sides confirmed that they will continue negotiations, with the next meeting expected to be arranged after the funeral of Iran's former Supreme Leader (July 4-9).
For the Indian rupee, the positive progress in the US-Iran negotiations is mainly transmitted through the oil price channel—the expectation of the resumption of navigation in the Strait of Hormuz has lowered global oil prices, thus benefiting the rupee. However, the lack of a fundamental agreement means that the geopolitical risk premium will not completely subside.
US Dollar and US Treasury Yields: Strong Support from Interest Rate Hike Expectations
Expectations of a Federal Reserve rate hike continue to support the dollar and U.S. Treasury yields.
The CME FedWatch tool shows that the market believes there is nearly an 85% probability of the Federal Reserve raising interest rates at least once this year, a scenario that is favorable for the US dollar and income-generating assets. The 10-year US Treasury yield is trading around 4.49%, up more than 2.5% from Monday's closing price of 4.37%. The US dollar index is trading around 101.30.
The market is closely watching tonight's June non-farm payroll report, which is expected to show an increase of 110,000 jobs, lower than the 172,000 in May, with the unemployment rate expected to remain at 4.3%.
If the data is strong, expectations for a Fed rate hike will be further solidified, and the dollar may break through its recent high; if the data is weak, expectations for a rate hike will cool, and the rupee is expected to gain more breathing room.
Foreign capital flows: Net selling begins in July
Foreign institutional investors turned net sellers on the first trading day of July, reducing their holdings of Indian stocks by approximately 1.14 billion rupees.
This trend is noteworthy – despite international oil prices falling back to pre-Middle East conflict levels, overseas investors continue to be net sellers of Indian assets, reflecting a global tendency for "safe-haven repatriation" of funds in anticipation of Fed rate hikes, as well as a reassessment of the valuation and earnings prospects of the Indian market.
The sustainability of foreign capital outflows will be a key variable in the medium-term trend of the rupee.
Technical Analysis
The USD/RUB pair is currently trading around 95, having returned above the 20-day exponential moving average (94.84), indicating a short-term bullish signal. The Relative Strength Index (RSI) is around 55, showing a neutral to slightly positive trend rather than momentum exhaustion, suggesting that as long as the price holds above the short-term moving average, pullbacks may still attract buying interest.
Support levels: The first support is at the 20-day moving average of 94.85, with further support from the structural trendline around 94.
Regarding resistance: the main resistance is located at the July 1 high of 95.30, and the next target after breaking through is the June 4 high of 95.80.
(USD/RUB daily chart, source: EasyForex)
At 16:20 Beijing time on July 2, the US dollar was trading at 95.26/27 against the rupee.
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