Indian Rupee extends gains as oil prices fall sharply

A sharp oil-price retreat supports further Indian Rupee gains against the US Dollar.
Diplomacy remains the US preference for resolving tensions with Iran rather than renewed military action.
US midterm elections move into investors’ spotlight.

USD/INR falls 0.23% to around 94.72 in Monday’s opening trade. Supported by a sharp pullback in oil prices, the Indian Rupee (INR) builds on the previous trading day’s advance against the US Dollar (USD).

Almost 4% lower at around Rs. 9,545, the MCX Crude Oil contract expiring on November 19 starts the week with a steep decline. This follows a multi-month high of Rs. 9,972 reached on Friday.

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

For currencies of economies heavily reliant on imported oil to meet their energy needs, including India, the correction in crude prices is supportive.

Oil retreats as diplomatic hopes revive

Renewed optimism over a diplomatic settlement between the United States (US) and Iran sends oil prices sharply lower at the open.

Washington has made no decision to resume strikes on Tehran, US Secretary of State Marco Rubio said over the weekend. He added that President Donald Trump favours a diplomatic solution. Rubio nevertheless cautioned that the US retains the capability to fulfil whatever military objective Trump chooses to pursue.

Concerns over prolonged energy supply risks have eased after the US signalled a willingness to pursue peace. This contrasts with its previously stated position of taking joint military action with Israel after the midterm elections.

Supply concerns have also subsided following Iran’s comments that it can reopen the Strait of Hormuz, a crucial route for almost 20% of global energy supply.

According to Al Jazeera, Iran’s Foreign Minister Abbas Araghchi said discussions with Qatari mediators continue on a proposal to reopen the Strait of Hormuz within two days, provided the US cooperates.

US midterms take centre stage for the Dollar

Tuesday’s US midterm elections are set to be this week’s main catalyst for the US Dollar and global markets alike.

Political risk surrounding the approaching US midterm elections has become the Dollar’s principal near-term driver, according to ING analysts. With positioning exposed to changes in the political landscape, they note that “the main risk for the dollar today is some precautionary unwinding of net-long positions ahead of Tuesday’s US midterm elections,”.

According to ING, “a Democratic sweep is trading around 68% in prediction markets,”. The bank cautions that such a result “could be seen as slightly negative for the US dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment.” It therefore advises against excessive near-term optimism towards the greenback: “We’d be cautious in chasing the USD upside in the next few days.”

USD/INR Technical Outlook

Near 94.70 on Monday, USD/INR is trading lower. Spot remains beneath the 20-day Exponential Moving Average (EMA) at 95.23, signalling a bearish near-term bias.

Immediate overhead supply at this short-term EMA continues to weigh on the pair. Meanwhile, the Relative Strength Index (14) at around 40 points to weak momentum but not extreme oversold conditions, leaving scope for further declines.

A decisive break above initial resistance at the 20-day EMA near 95.23 would be needed to reduce the bearish bias and allow a broader recovery. Below current levels, the September low of 94.28 represents a key demand zone for USD/INR.

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

Indian Rupee: Key Questions

Indian Rupee: main market drivers

External developments have a particularly strong influence on the Indian Rupee (INR). Key drivers include Crude Oil prices, given India’s heavy dependence on imported Oil, foreign investment levels and the US Dollar’s value, as most trade is settled in USD. The Rupee is also shaped by interest rates set by the Reserve Bank of India (RBI) and the central bank’s direct intervention in FX markets to stabilise the exchange rate.

RBI policy and its effect on the Indian Rupee

To support trade through exchange-rate stability, the Reserve Bank of India (RBI) intervenes actively in foreign exchange markets. It also adjusts interest rates to keep inflation at its 4% target. Rate increases generally support the Rupee through the ‘carry trade’: investors borrow in lower-interest-rate countries and invest in those offering relatively higher rates, earning the difference.

Macroeconomic drivers of the Indian Rupee

Inflation, interest rates, economic growth (GDP), the trade balance and foreign investment inflows all help determine the Rupee’s value. Faster growth can attract additional overseas investment and increase demand for the currency. A narrowing trade deficit will ultimately strengthen the Rupee, while higher interest rates, particularly real rates after subtracting inflation, also provide support. Greater appetite for risk can encourage inflows of Foreign Direct and Indirect Investment (FDI and FII), benefiting the Rupee as well.

Inflation and the Indian Rupee

The Rupee generally suffers when inflation rises, especially when it exceeds that of India’s peers, as this reflects a loss of value through oversupply. Higher inflation also makes exports more expensive and prompts increased selling of Rupees to pay for foreign imports, weighing on the currency. However, inflation typically prompts the Reserve Bank of India (RBI) to raise interest rates. The resulting increase in demand from international investors can support the Rupee. Lower inflation produces the reverse effects.