The Indian Rupee (INR) continues to struggle against the US Dollar (USD) as oil prices remain elevated, putting pressure on the currency and domestic markets. In Tuesday’s opening session, the USD/INR pair is trading strongly around 96.35, remaining near its record high of 96.62 touched on Monday.
The sustained weakness reflects a combination of higher crude oil prices, a firm US Dollar, and global geopolitical uncertainty impacting energy flows through strategic channels like the Strait of Hormuz. In their article, Taurus Partners’ brokers provide a complete explanation of the subject.
Oil Prices Remain Elevated
Crude oil remains a key driver of the INR’s performance due to India’s dependence on oil imports to meet its energy requirements. During press time, WTI crude oil trades near $102.16 per barrel, slightly lower than its two-week high of $104.74 recorded on Monday.
The elevated oil prices continue to weigh on currencies from oil-importing economies, as higher crude costs increase import bills, widen current account deficits, and create inflationary pressures. This trend has been a significant factor behind the INR’s recent underperformance, keeping the USD/INR pair elevated near 96.35.
Fuel Prices in India See Consecutive Hikes
In response to the surge in crude oil prices, the Indian government has raised petrol and diesel prices again in less than a week. Petrol and diesel were hiked by 87 and 91 paise per litre, respectively, marking the second increase within a week. On Friday, fuel prices had already been raised by Rs. 3 per litre, further straining consumers and adding to inflationary pressures.
Higher fuel costs not only affect transportation and logistics but also put additional pressure on industrial input costs, indirectly impacting corporate earnings. The cumulative effect of elevated fuel costs and a weakening currency is fueling inflation concerns for policymakers and market participants.
Geopolitical Developments Affect Oil Prices
The oil price rally has temporarily eased after comments from the US President, signaling a potential deal with Iran. Late Monday, he confirmed he delayed planned strikes on Iran, describing recent developments in negotiations as very positive. He suggested that there is a very good chance a deal could be finalized soon.
Meanwhile, a spokesperson from the Iranian Foreign Ministry indicated that Iran is focused on ending the war at this stage, with negotiations continuing through Pakistan. While geopolitical uncertainty remains, the prospect of easing tensions has slightly capped the upside in oil prices.
FIIs Continue to Support Indian Equities
Despite concerns over rising crude prices and INR depreciation, Foreign Institutional Investors (FIIs) have remained net buyers in the Indian stock market for three consecutive trading days. On Monday, FIIs invested Rs. 2,813.69 crore, bringing their cumulative purchases over three days to Rs. 4,330.32 crore.
The continued FII inflows reflect sustained foreign investor confidence in India’s equity markets despite macroeconomic headwinds. These investments provide support to benchmark indices, even as elevated oil prices pose risks to corporate profit margins and broader economic growth.
US Dollar Strength Provides Further Pressure
Another key factor supporting the USD/INR pair is the strength of the US Dollar, fueled by firm US Treasury yields. Traders have largely discounted the possibility of Federal Reserve (Fed) rate cuts this year, favoring a more hawkish outlook.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, trades 0.15% higher near 99.10, while 10-year US Treasury yields remain elevated near 4.60%, close to their yearly highs. The CME FedWatch tool currently shows a 53% probability that the Fed will maintain current rates by year-end, with remaining expectations leaning toward at least one interest rate hike.
Technical Analysis: USD/INR Remains Firm
From a technical perspective, the USD/INR pair remains firm above 96.00, extending its gains beyond the 20-day exponential moving average (EMA) at 95.07, signaling a bullish near-term bias. The upward-sloping 20-day EMA suggests the underlying trend is constructive, while the Relative Strength Index (RSI) at 70.13 enters overbought territory, indicating strong but increasingly stretched upside momentum.
Immediate support is seen near the 20-day EMA around 95.07, where buyers are likely to defend the prevailing uptrend. A deeper correction below this level could expose the mid-94s breakout zone, but as long as the pair remains above the 20-day EMA, dips are likely corrective rather than trend-reversing.
On the upside, the USD/INR is trading in largely uncharted territory, with potential to extend its advance toward 97.00.
Conclusion
In summary, the Indian Rupee continues to underperform amid sustained high oil prices, a firm US Dollar, and geopolitical uncertainty. Consecutive fuel price hikes in India are contributing to domestic inflationary pressures, while FIIs continue to support the equity market with robust inflows.
The combination of geopolitical events, macro pressures, and global monetary policy expectations will likely determine the near-term trajectory of the INR.