Higher oil prices keep driving up US Dollar demand, weakening Indian Rupee

• The Indian Rupee remains under pressure against the US Dollar as demand for the greenback stays strong.
• Oil prices ease as concerns over conflicts spreading within the Middle East subside.
• Traders expect the RBI to step in around the 95.30 level.

The Indian Rupee (INR) is under renewed pressure against the US Dollar (USD), with elevated oil prices sustaining substantial demand for the greenback. Early in Tuesday’s session, USD/INR edges higher to around 95.22.

At the time of writing, the November 19 MCX Crude Oil contract trades near Rs. 9,600, down 1.24%. Despite the decline, it remains close to its recent highs of Rs. 9,828.

When oil prices are high, currencies of economies heavily reliant on imported oil for their energy needs, including India, typically lag.

Can oil prices retain a firm outlook despite the pullback?

Easing concerns about a wider Middle East conflict have pulled oil prices back from recent highs. The shift follows reports that Iran, Saudi Arabia, Pakistan, and Turkey have agreed to pursue further security talks and strengthen regional cooperation.

According to a Monday report by the Islamic Republic of Iran Broadcasting (IRIB), senior-level discussions in Tehran involving Saudi Arabia, Pakistan, and Turkey were aimed at representing the Mecca Joint Defence Agreement. The agreement said all four countries had committed to continued dialogue and consultations, with particular emphasis on regional peace, security and stability.

However, a bullish outlook for oil continues to draw support from fears that the United States (US) and Israel may renew attacks on Iran following their respective elections.

Political rhetoric from Washington is increasing the region’s vulnerability to rising energy costs, analysts at MUFG/BTMU caution. With US President Trump "hinting at renewed military action against Iran after the US midterm elections," they warn 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 therefore remain particularly vulnerable to another surge in oil prices stemming from Middle East risk.

Will the RBI intervene soon to support the rupee?

Financial markets anticipate intervention by the Reserve Bank of India (RBI) soon, after several days of one-way depreciation in the Indian currency against the US Dollar.

A Reuters report cites traders identifying 95.30 as a crucial level, as the RBI has intervened more aggressively around it. They said a sustained breach could leave the rupee vulnerable to a sharper fall towards 96 per dollar.

What will the Fed’s policy announcement signal?

For global markets, Wednesday’s monetary policy announcement from the Federal Reserve (Fed) will be this week’s main catalyst.

Little of note is expected in the formal communiqué accompanying the upcoming Fed decision, according to economists at Deutsche Bank. They say “the statement itself [is] to contain only limited changes, although dissents to a hold are possible.” Their focus is elsewhere: “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,” with markets likely to examine his comments closely for any change in the policy narrative.

USD/INR Technical Analysis: Can Short-Term Support Hold?

Trading at 95.2405 on the daily chart, USD/INR remains marginally above its 9-period exponential moving average (EMA) of 95.1168, the immediate short-term support. Earlier this month, the pair traded in the mid-96s before pulling back. Meanwhile, the Relative Strength Index (RSI) reading of 46.05 is below the 50 mark, suggesting fading bullish momentum. This points to consolidation or a mild correction rather than a strong directional move.

Traders will initially look to the 9-period EMA at 95.12 for downside support. A sustained move below it would pave the way for further losses towards the June 25 low of 94.16. For an advance, the key obstacle is the October 12 high of 95.80.

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