Indian Rupee gains further as US Dollar weakens and oil prices fall

Supported by several favourable factors, the Indian Rupee extends its rally against the US Dollar.
Riskier currencies gain appeal as the US Dollar weakens and oil prices retreat.
Midterm elections deliver a setback to US Republicans.

Gains in the Indian Rupee (INR) against the US Dollar (USD) stretch into a sixth trading day on Thursday, with USD/INR sliding to a two-month low of 94.32. Heavy selling in the US Dollar and a steep fall in oil prices are supporting the move, following the setback suffered by United States (US) Republicans in the midterm elections.

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

At the time of writing, a 0.25% decline has taken the US Dollar Index (DXY) to around 101.25. The index, which tracks the Greenback against six major currencies, remains near the monthly low of 101.10 recorded the day before.

In the oil market, the MCX Crude Oil contract due to expire on November 19 has slipped 1.7% to around Rs. 8,222. Over the past few days, prices have dropped almost 17.50% from their recent highs of Rs. 9,972.

For economies such as India, where energy requirements depend heavily on imported oil, falling crude prices are supportive of their currencies.

Expectations of political gridlock are adding to the intense selling pressure on the US Dollar. According to ING, Democrats gaining control of both the Senate and the House of Representatives would likely “lead to gridlock on the debt ceiling, a prolonged government shutdown next year”. The bank also cautioned that “fears of tougher regulation could weigh on Artificial Intelligence (AI) stocks (we’ve recently seen how that can hit the greenback)”.

Could US political friction weaken the Dollar heading into 2027?

Over the medium term, political developments in the US could present another obstacle for the Dollar, according to ING analysts. In their view, “the dollar could see a little more weakness into 2027, however, if an emboldened Democratic Party takes greater issue with Republican policy, including deregulation and the AI build-out.” Further supporting their assessment that growing political friction may erode the currency’s appeal, ING says “the potential for a prolonged government shutdown in mid-2027 adds to the case for a weaker dollar next summer,”.

How has the Republicans’ defeat eased Iran war escalation risks?

Oil prices have fallen sharply as the US Democrats’ midterm election victory reduces concerns about a further escalation of the conflict between the US and Iran.

Crude shipments through the Strait of Hormuz have also returned to nearly pre-war levels, albeit at a higher cost, Reuters reported, citing analysts. The strait is a vital chokepoint for almost 20% of global energy supply.

JP Morgan said: “The resumption of Gulf supply has pushed the global oil market back into surplus after months of disruption caused by the war,”

USD/INR Technical Analysis: Where are the key support and resistance levels?

A fall to 94.32 on Thursday leaves USD/INR with a bearish near-term bias. Spot continues to trade below the 20-period Exponential Moving Average (EMA) at 95.08, keeping this dynamic resistance intact. Meanwhile, the Relative Strength Index (RSI) reading of 33.9 sits just above oversold territory, suggesting that selling pressure remains in place but is becoming stretched.

A recovery above the 20-day EMA around 95.08, the first resistance on the upside, would be needed to relieve the prevailing bearish pressure and allow a corrective rebound. On the downside, key support lies at 94.16, the low recorded on June 25.

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

Indian Rupee: Frequently asked questions

Which key factors shape movements in the Indian Rupee?

External developments have a particularly strong influence on the Indian Rupee (INR). Important drivers include Crude Oil prices, given India’s heavy reliance on imported Oil, and the US Dollar’s value, since most trade is carried out in USD. Foreign investment levels also play a role. Other major influences are the interest rates set by the Reserve Bank of India (RBI) and its direct intervention in FX markets to stabilise the exchange rate.

How is the Indian Rupee affected by Reserve Bank of India decisions?

To support trade, the Reserve Bank of India (RBI) intervenes actively in forex markets to keep the exchange rate stable. Interest rate adjustments are another policy tool, used to steer inflation towards its 4% target. An increase in interest rates generally supports the Rupee through the ‘carry trade’: investors borrow in countries where rates are lower and invest those funds in countries offering relatively higher rates, earning the difference.

Which macroeconomic indicators affect the Indian Rupee’s value?

The Rupee’s value responds to inflation, interest rates, economic growth (GDP), the trade balance and foreign investment inflows. Faster growth can attract additional overseas investment and increase demand for the currency. A narrowing trade deficit will eventually strengthen the Rupee, while higher interest rates, particularly real rates after subtracting inflation, also lend support. When risk appetite improves, greater inflows of Foreign Direct and Indirect Investment (FDI and FII) can provide a further boost to the Rupee.

What effect does inflation have on the Indian Rupee?

Inflation generally weighs on the currency, especially when it exceeds levels in India’s peer economies, because it reflects devaluation arising from oversupply. By raising export costs, inflation also results in more Rupees being sold to pay for foreign imports, putting further pressure on the currency. However, higher inflation typically prompts the Reserve Bank of India (RBI) to increase interest rates. This can support the Rupee by attracting stronger demand from international investors. Lower inflation has the reverse effect.