Middle East risks keep Indian Rupee under pressure

• A sharp rise in oil prices weighs on the Indian Rupee.
• Persistent Middle East risks should keep a risk premium in oil prices, according to TD Securities.
• US Treasury yields and the US Dollar both show signs of recovery.

With USD/INR edging up towards 95.25 in Friday’s opening trade, the Indian Rupee (INR) remains under pressure against the US Dollar (USD) as Middle East risks sustain the surge in oil prices. The pair is approaching the previous day’s high of 95.38, its strongest level in over two weeks.

Friday’s early session sees the MCX Crude Oil contract expiring on 19 November climb towards its recent highs of Rs. 9,873.

For economies such as India, where imported oil supplies a substantial share of energy needs, rising oil prices are unfavourable for their currencies.

Crude faces pressure from headlines as risk premium supports energy prices

A "deal headline barrage" before the US midterm elections is putting considerable pressure on crude, TD Securities says, with "persistent headlines of deal talks" weighing on prices. While the bank expects this pattern to continue into the vote, it does not expect Iran to accept a deal "just before the tense elections."

Nevertheless, TD Securities emphasises that "on the ground, the fundamentals remain tight," citing tanker attacks and pressure from the Houthis, which "appear to have been successful in reducing Mideast flows, at least temporarily." In the bank’s view, "so long as continued attacks keep a risk premium in the market, energy prices should remain well-supported in this higher range."

US Dollar and Treasury yields recover lost ground

USD/INR is also drawing support from price action suggesting that the US Dollar and US Treasury yields are recovering.

After falling to 101.59 earlier in the session, the US Dollar Index (DXY) has recouped most of its initial losses and stands around 101.78 at the time of publication. The index measures the Greenback against six major currencies.

The 10-year US Treasury yield has also recovered most of its earlier decline after touching a fresh seven-week low of 4.89%. At the time of writing, it remains down 0.24% at around 4.93%.

Pressure on the US Dollar and bond yields came despite stronger-than-expected preliminary United States (US) Q3 Gross Domestic Product (GDP) growth and a further increase in the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred inflation measure.

Tuesday’s release from the Bureau of Economic Analysis (BEA) put annualised economic growth at 3.4%, exceeding the 3.2% forecast and the previous reading of 2.2%.

September’s US core PCE inflation rate reached 3.1% year on year (YoY), matching expectations and rising from August’s 3%. Monthly growth was 0.3%, unchanged from the previous release and in line with estimates.

USD/INR Holds a Mildly Bearish Technical Bias

Trading at 95.25 on the daily chart, USD/INR retains a mildly bearish short-term outlook while spot remains beneath the 20-period exponential moving average (EMA) at 95.32. Following its retreat from late-September highs, the pair’s move below the short-term EMA indicates that attempts to rise are meeting resistance. Meanwhile, the Relative Strength Index (RSI) sits just below neutral at 46.94, suggesting that bullish momentum is weakening rather than signalling outright oversold conditions.

Initial resistance lies around 95.32 at the 20-day EMA, with 96.00 the next level above it. On the downside, the 25 June low of 94.16 provides key support.

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