Indian Rupee: Downside Risk Against US Dollar Calls for Caution – OCBC

Renewed strength in Oil prices has interrupted the Indian Rupee's (INR) recovery, bringing India’s external vulnerabilities back into focus, according to OCBC strategists Christopher Wong and Sim Moh Siong. While RBI measures and IPO inflows have provided stability, the currency’s fundamentals remain unchanged as elevated Oil prices continue to drive structural Dollar demand. Maintaining its cautious view, OCBC expects Oil prices, portfolio flows and the direction of the USD to determine INR’s next move.

Are Oil-Related Vulnerabilities Limiting Rupee Gains?

"INR’s recent recovery stalled overnight as renewed gains in oil prices weighed on sentiment. The rebound had been supported by the RBI’s 10–12 October measures to ease USD demand pressures, alongside IPO-related inflows."

"However, these factors have somewhat help to stabilise the currency rather than altered its underlying fundamentals. Brent’s move above USD112/bbl served as a reminder that India’s external vulnerabilities remain intact, with elevated oil prices continuing to generate structural USD demand."

"We retain a cautious stance on INR’s outlook. RBI measures should help discourage speculative positioning and limit near-term depreciation pressure, but they are unlikely to sustain further gains if oil prices remain elevated."

"In our view, the recent gains in INR have been primarily policy- and flow-driven; the next move will depend more decisively on oil prices, portfolio flows and the broader direction of the USD."

"USD/INR last closed at 94.82 levels. Bearish momentum on daily chart intact but shows tentative signs of slowing while RSI rose from oversold conditions. Some rebound risks not ruled out in the near term."

"Resistance at 95 levels, 95.20 (38.2% fibo retracement of Apr low to May high) and 95,50 (50, 100 DMAs). Support at 94.20/30 levels (61.8% fibo, recent lows). Bias to lean against strength."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)