Indian Rupee declines as higher oil prices drive further demand for US Dollar

• Strong demand for US Dollars weighs on the Indian Rupee against the US Dollar.
• Easing concerns over the spread of internal conflicts in the Middle East push oil prices lower.
• Traders expect RBI intervention around the 95.30 level.

At nearly 95.22, USD/INR edges higher in Tuesday’s opening trading. The Indian Rupee (INR) is once again losing ground against the US Dollar (USD), with elevated oil prices sustaining substantial demand for US Dollars.

A decline of 1.24% leaves the MCX Crude Oil contract expiring on 19 November trading near Rs. 9,600 at the time of writing. Nevertheless, it remains close to its recent highs of Rs. 9,828.

When oil prices are high, currencies of economies heavily dependent on imported oil for their energy needs, such as India, typically underperform.

Oil prices ease but outlook stays firm

Reports that Iran, Saudi Arabia, Pakistan, and Turkey have agreed to pursue further security talks and strengthen regional cooperation have eased concerns about Middle East conflicts spreading. Oil prices have consequently pulled back from their recent highs.

High-level talks in Tehran involving Saudi Arabia, Pakistan, and Turkey were aimed at representing the Mecca Joint Defence Agreement, the Islamic Republic of Iran Broadcasting (IRIB) reported on Monday. Under the agreement, the four countries committed to continuing dialogue and consultations, particularly on regional peace, security and stability.

The outlook for oil prices nonetheless retains a bullish bias, supported by concerns that the United States (US) and Israel could restart attacks on Iran following their respective elections.

Washington’s political rhetoric is increasing the region’s vulnerability to higher energy costs, analysts at MUFG/BTMU warn. With US President Trump "hinting at renewed military action against Iran after the US midterm elections," they caution that any "renewed escalation that pushes crude materially higher would amplify the adverse terms-of-trade and inflation shock for the region’s net energy importers and those with current account deficits." Asian economies are therefore particularly vulnerable to another surge in oil prices arising from Middle East risk.

Markets anticipate RBI intervention soon

Following several days of uninterrupted depreciation in the Indian currency against the US Dollar, financial markets anticipate that the Reserve Bank of India (RBI) will step in soon.

Traders identify 95.30 as a crucial level, citing the RBI’s more aggressive intervention around that point, according to a Reuters report. They said a sustained break could leave the rupee vulnerable to a steeper fall towards 96 per dollar.

Fed policy announcement takes centre stage

Wednesday’s monetary policy announcement from the Federal Reserve (Fed) is set to be the main catalyst for global markets this week.

Little change to the formal communiqué is expected at the forthcoming Fed decision, according to economists at Deutsche Bank. They note that “the statement itself [is] to contain only limited changes, although dissents to a hold are possible.” Instead, they argue, “the interest will therefore be in Chair Warsh’s press conference and how the Fed balances still-elevated inflation and solid growth against the recent tightening in financial conditions,” as markets are likely to examine his comments closely for any change in the policy narrative.

USD/INR Holds Above Near-Term Technical Support

At 95.2405 on the daily chart, USD/INR remains marginally above its 9-period exponential moving average (EMA) of 95.1168, the immediate source of short-term support. Having pulled back from the mid-96s reached earlier in the month, the pair shows signs of fading bullish momentum. The Relative Strength Index (RSI), at 46.05 and below the 50 threshold, points to consolidation or a mild corrective bias rather than a pronounced directional move.

Traders will initially look to the 9-period EMA at 95.12 for downside support. A sustained breach would leave scope for further losses towards the 25 June low of 94.16. Resistance, meanwhile, is centred on the 12 October high at 95.80, which represents a key hurdle.

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