The Indian Rupee (INR) weakens further after a brief break against the US Dollar (USD) in Tuesday’s opening session. USD/INR jumps to near 94.46 as elevated oil prices continue to hurt the Indian rupee.
At the time of writing, WTI is 0.6% higher at almost $95.60 and close to the two-week high of $97 posted on Thursday.
Currencies from economies such as India that rely heavily on oil imports to meet their energy needs tend to underperform in a high oil price environment.
Oil prices remain higher due to uncertainty over the reopening of the Strait of Hormuz, a critical gateway to nearly 20% of the world’s energy supply.
According to a Reuters report, crude oil flows and hedging-related US dollar demand are the main factors dragging the Indian rupee exchange rate
Uncertainty regarding the reopening of Hormuz persists
Uncertainty over the reopening of Hormuz remains escalated as Washington has shown no sign of interest in Iran’s proposals to end the war. Late Monday, White House Press Secretary Karoline Leavitt stated that US President Trump had discussed Iran’s proposal with his national security team, which is calling for a reopening of the Strait of Hormuz and a indefinite ceasefire. Leavitt did not disclose any information about Washington’s chances of continuing this conversation.
“I wouldn’t say they’re considering it. I would just say there was a discussion this morning, which I don’t want to get ahead of, and I’m sure you’ll hear directly from the president on that,” Leavitt said.
On Monday, US President Trump received another proposal from Iran, which he described as “better” than the one he was to present at the canceled peace talks in Islamabad over the weekend, but “still insufficient.”
FIIs are again divesting from the Indian stock market
Over the last six trading days, Foreign Institutional Investors (FIIs) continued to net sell and disposed of their holdings worth Rs. 18,291.34 crore after compact purchases during April 15-17. FIIs appear to be abandoning their stake in the Indian stock market due to elevated oil prices, which has raised concerns over India Inc’s earnings outlook.
Fed policy is in the spotlight
The main stimulus for the US dollar this week will be Wednesday’s monetary policy announcement by the Federal Reserve (Fed), in which it is expected to leave interest rates unchanged for the third time in a row in the range of 3.50%-3.75%. Investors will be paying close attention to Fed Chair Jerome Powell’s comments on the outlook for monetary policy in the wake of the energy price shock amid the Hormuz shutdown.
Technical analysis: USD/INR getting closer to the all-time high around 95.20
USD/INR is trading higher at around 94.46, maintaining a bullish bias in the compact term as it holds above the 20-day exponential moving average (EMA) at 93.53. A position above the rising EMA suggests that the broader uptrend remains intact, while the Relative Strength Index (RSI) around 61 indicates powerful but not overextended upside momentum.
On the other hand, the 20-day EMA at 93.53 provides the first layer of vigorous support, and a daily close below this level would indicate a deeper corrective phase within the broader trend. Looking up, the pair is aiming to reach a high again around 95.20. The spot would enter uncharted territory if it manages to break decisively above 95.20.
(The technical analysis for this story was written with the support of an AI tool.)
Indian Rupee FAQs
The Indian rupee (INR) is one of the most sensitive currencies to external factors. The price of oil (the country is largely dependent on imported oil), the value of the US dollar – most trade takes place in USD – and the level of foreign investment are influenced. Direct intervention by the Reserve Bank of India (RBI) in the foreign exchange markets to maintain a stable exchange rate, as well as the level of interest rates set by the RBI, are other major factors influencing the rupee rate.
The Reserve Bank of India (RBI) actively intervenes in the forex markets to maintain a stable exchange rate and facilitate trading. Additionally, the RBI is trying to keep the inflation rate at the target of 4% by adjusting interest rates. Higher interest rates tend to strengthen the rupee. This is due to the role of the carry trade, where investors borrow from countries with lower interest rates to place their money in countries offering relatively higher interest rates and profit from the difference.
Macroeconomic factors affecting the value of the rupee include inflation, interest rates, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate may lead to more foreign investment, increasing demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates net of inflation), are also positive for the rupee. A risk-laden environment may lead to higher inflows of foreign direct and indirect investment (FDI and FII), which also benefits the rupee.
Higher inflation, especially if comparable to Indian inflation, is generally negative for the currency as it reflects devaluation due to oversupply. Inflation also increases the cost of exports, which leads to more rupees being sold to buy foreign imports, which is negative against the rupee. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates, which can be positive for the rupee due to increased demand from international investors. The opposite effect occurs in the case of lower inflation.
