USD/INR edges lower after record high, downside limited by geopolitical risks

• USD/INR edges lower as the US Dollar softens, but downside remains limited near record highs.
• Geopolitical tensions and elevated Oil prices continue to pressure the Rupee.
• Strong US Dollar demand and sustained foreign outflows keep the pair supported.

USD/INR trades slightly lower on Tuesday, pressured by a modest pullback in the US Dollar (USD), though the downside remains limited as ongoing geopolitical tensions continue to weigh on the Indian Rupee (INR). The pair retreats after testing a fresh record high of 95.40 set on Monday and is trading around 95.12 at the time of writing, down about 0.12% on the day.

The Middle East war remains a key drag on emerging market currencies like the INR. Traders are seeking safety in the USD amid heightened global uncertainty.

At the same time, India’s heavy reliance on energy imports is adding to downside pressure on the Rupee. The country imports over 80% of its crude Oil needs, with a significant share of shipments passing through the Strait of Hormuz. With Brent crude hovering near $110 per barrel amid ongoing supply disruptions, the rising import bill is driving strong demand for US Dollars from domestic buyers, further weighing on the INR.

The macro backdrop adds another layer of pressure, as higher crude prices are pushing up inflation and slowing growth. This has reduced expectations of near-term interest rate cuts globally, keeping bond yields elevated and making emerging market assets less attractive to foreign investors.

Foreign investors have continued to cut exposure to Indian equities amid weaker risk appetite. Foreign Portfolio Investors (FPIs) have pulled out over $20 billion from Indian equities in the first four months of 2026, with nearly $19 billion of these outflows recorded since the start of the Iran war.

Looking ahead, USD/INR is likely to remain supported as long as Oil prices stay elevated, foreign outflows continue, and the US Dollar holds firm.