USD/INR extends rally as elevated oil prices keep pressuring Indian Rupee
- The Indian Rupee falls further against the US Dollar as higher oil prices boost demand for the Greenback by Indian importers.
- Fresh concerns over India Inc.'s earnings projections have dampened the FIIs interest in the Indian stock market.
- This week, investors will pay close attention to the Fed’s monetary policy.
The Indian Rupee (INR) weakens further after a brief pause against the US Dollar (USD) in the opening session on Tuesday. The USD/INR pair jumps to near 94.46 as elevated oil prices continue to hurt the Indian Rupee.
As of writing, the WTI Oil price trades 0.6% higher to near $95.60 and is close to its two-week high of $97 posted on Thursday.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high oil price environment.
Oil prices have remained higher due to uncertainty over the reopening of the Strait of Hormuz, a critical passage to almost 20% of global energy supply.
According to a Reuters report, oil-linked flows and hedging-related US Dollar demand are key headwinds for the Indian Rupee
Hormuz reopening uncertainty lingers on
The uncertainty regarding the reopening of the Hormuz remains escalated, as Washington has not shown any signs of interest in proposals delivered by Iran to end the war. On late Monday, White House press secretary Karoline Leavitt stated that US President Trump discussed Iran’s proposal with the national security team, which calls for the reopening of the Strait of Hormuz and a permanent ceasefire. Leavitt didn’t reveal any information regarding the odds of whether it will be taken forward by Washington.
"I wouldn't say they're considering it. I would just say that there was a discussion this morning that I don't want to get ahead of, and you'll hear directly from the president, I'm sure, on this topic," Leavitt said.
On Monday, US President Trump received another proposal from Iran, which he called “better” than the one, which it was expected to present in canceled peace talks in Islamabad over the weekend, but "still not good enough”.
FIIs offload stake in Indian stock market again
In the last six trading days, Foreign Institutional Investors (FIIs) have remained net sellers and have offloaded their stake worth Rs. 18,291.34 crore after a little buying in the April 15-17 period. FIIs appear to be dumping their stake in the Indian equity market due to elevated oil prices, which have raised concerns over India Inc. earning projections.
Fed’s policy comes into spotlight
This week, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday, in which it is expected to leave interest rates unchanged in the range of 3.50%-3.75% for the third time in a row. Investors will pay close attention to Fed Chair Jerome Powell’s comments regarding the monetary policy outlook in the wake of the energy price shock amid the Hormuz closure.
Technical Analysis: USD/INR inches closer to all-time high around 95.20
USD/INR trades higher at around 94.46, maintaining a bullish near-term bias, as it holds above the 20-day Exponential Moving Average (EMA) at 93.53. The positioning above this rising EMA suggests the broader uptrend remains intact, while the Relative Strength Index (RSI) around 61 indicates firm but not overstretched upside momentum.
On the downside, the 20-day EMA at 93.53 stands as the first layer of dynamic support, and a daily close below this level would hint at a deeper corrective phase within the broader trend. Looking up, the pair aims to revisit the all-time high around 95.20. The spot would enter uncharted territory if it manages a decisive break above 95.20.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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