Lower oil prices support Indian Rupee’s continued gains against US Dollar

Lower oil prices support further Indian Rupee gains against the US Dollar.
Hopes of a diplomatic resolution between the US and Iran reduce the risk premium in oil prices.
Global markets face their next major catalyst in the US midterm elections.

USD/INR falls 0.15% to around 94.83 in opening trade on Tuesday. The Indian Rupee (INR) is advancing against the US Dollar (USD) for a third consecutive trading day.

Continued selling pressure on oil is supporting the Indian currency, as prospects improve for a diplomatic resolution between the United States (US) and Iran.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The MCX Crude Oil contract expiring on November 19 stands near Rs. 9,222 at the time of writing, a gain of 1.65%. It nevertheless remains almost 7.5% below its recent multi-month peak of Rs. 9,972.

Oil risk premium declines on diplomatic developments

TD Securities says part of the risk premium has already unwound following reports that US President Donald Trump is prepared to allow more time for diplomacy. Headlines "signaling attacks may not be imminent immediately before/after the midterms," have resulted in "a portion of the geopolitical risk premium priced out of crude oil and petroleum products." As positioning and sentiment respond to the shifting geopolitical outlook, the strategists say that "with flows elevated, and a large portion of recent upside attributed to a risk premium, these headlines will have an increasingly large impact on the market,"

That said, TD Securities warns that “headlines alone are unlikely to shed the whole risk premium.” Persistent geopolitical threats still provide support for prices. As TD Securities puts it, “so long as there is no concrete conclusion to the war, and tanker and Houthi attacks remain prevalent, we do not anticipate a complete erosion of the risk premium via diplomacy headlines alone,”

For economies heavily dependent on imported oil to cover their energy requirements, including India, cheaper oil is favourable for their currencies.

US midterms become the next market focus

With voting approaching, Brown Brothers Harriman (BBH) strategists say “the US midterm elections will be held on Tuesday,” and describe “Democrats widely expected to win the House of Representatives.” The contest for the other chamber is tighter: “Senate control is much closer, but the tide favors the Democratic Party,” they say. They note that “Democrats need a net gain of four seats to secure a majority in the Senate” — an objective they consider “within reach as Republicans are defending six of the seven toss-up seats.”

A Democratic victory in both chambers appears to be the betting-market base case, according to BBH. Markets “favor a Democratic sweep,” with Polymarket and Kalshi “putting the odds around 70%.” The strategists say this “points to a relatively muted initial market reaction if Democrats win both chambers,” but caution that “a Republican Senate hold would be the bigger surprise and could spark more market volatility.”

94.83: USD/INR Technical Outlook

At 94.83 on the daily chart, USD/INR remains below its 20-day Exponential Moving Average (EMA) of 95.21, leaving the near-term outlook bearish. Trading beneath this short-term trend indicator suggests limited scope for rallies. Meanwhile, the Relative Strength Index (14) reads 38.9, below the neutral 50 threshold. This points to continued downward pressure rather than an extreme oversold condition.

The 20-day EMA at 95.21 provides the first upside resistance. A daily close above it would be required to ease the prevailing bearish bias. The current dataset identifies no nearby technical support, so traders may use recent lows and price action to gauge interim floors. Momentum indicators also suggest rebounds could remain constrained while USD/INR stays below the 95.21 area.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Indian Rupee: Frequently Asked Questions

Which factors are the main drivers of the Indian Rupee?

External developments have a particularly strong influence on the Indian Rupee (INR). Key drivers include crude oil prices, given India's heavy reliance on imported oil; the US Dollar's value, as most trade is settled in USD; and the scale of foreign investment. The Rupee is also significantly affected by interest rates set by the Reserve Bank of India (RBI) and its direct intervention in FX markets to stabilise the exchange rate.

How does Reserve Bank of India policy affect the Indian Rupee?

To facilitate trade, the Reserve Bank of India (RBI) intervenes actively in foreign exchange markets to keep the exchange rate stable. It also adjusts interest rates to steer inflation towards its 4% target. Higher rates typically support the Rupee through the ‘carry trade’. Under this strategy, investors borrow in lower-interest-rate countries and invest the proceeds in countries offering relatively higher rates, earning the difference.

Which macroeconomic indicators shape the Indian Rupee's value?

Inflation, interest rates, economic growth (GDP), the trade balance and foreign investment inflows all help determine the Rupee's value. Faster growth can attract additional overseas investment and increase demand for the currency, while a narrowing trade deficit will eventually strengthen it. Higher interest rates are supportive too, particularly real rates, which are interest rates adjusted for inflation. Greater risk appetite can bring increased Foreign Direct and Indirect Investment (FDI and FII) inflows, also benefiting the Rupee.

What effect does inflation have on the Indian Rupee?

Inflation generally weighs on the Rupee, especially when it exceeds that of India's peers, because it reflects devaluation caused by oversupply. Rising inflation also makes exports more expensive and results in more Rupees being sold to pay for foreign imports, further undermining the currency. However, higher inflation usually prompts the Reserve Bank of India (RBI) to raise interest rates. The resulting increase in demand from international investors can support the Rupee. Lower inflation has the reverse effect.