Rupee Hits Record Low as Oil Rise, Hawkish Fed Weigh

Key Moments

Rupee Slides to New Lows as Oil Rally Deepens

The Indian Rupee (INR) continued to lose ground against the U.S. Dollar (USD) at the start of the week, extending a decline that has lasted more than a week. The USD/INR pair moved into uncharted territory and set a new record high at 96.33, as another leg higher in crude prices further undermined the domestic currency.

At the time of writing, West Texas Intermediate (WTI) crude was higher by almost 1.66%, trading near $102.60. Currencies of economies that depend heavily on imported oil for their energy needs, such as India, tend to underperform during periods of elevated crude prices.

Geopolitical Tensions Stir Oil Market

Concerns over a potential resumption of conflict between the United States and Iran contributed to the latest upswing in oil prices.

Over the weekend, United States (US) President Donald Trump threatened consequences against Iran, through a post on Truth Social, if the nation fails to reach a deal soon.

“For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!” Trump wrote.

Talks between Washington and Tehran were halted ahead of U.S. President Trump’s trip to Beijing, after Trump rejected Iran’s counterproposals as “totally unacceptable.” In reply, Iranian foreign ministry spokesperson Esmaeil Baghaei argued that Tehran’s offer to the U.S. was not “excessive” and said that Washington still held “unreasonable demands.”

Separately, a report from the New York Times (NYT), cited by The Times of Israel, indicated that the U.S. and Israel are preparing for coordinated strikes on Iran as early as next week.

FIIs Turn Net Buyers but Caution Persists

Foreign Institutional Investors (FIIs) have recently shifted stance in Indian equities, becoming net buyers for two consecutive sessions, based on National Stock Exchange (NSE) data.

On Friday, overseas investors purchased a net Rs. 1,329.17 crore in Indian stocks. This followed net inflows of Rs. 187.46 crore on Thursday.

Despite the modest improvement in flows, broader sentiment remains fragile amid worries that elevated crude prices could weigh on earnings projections for India Inc.

Before Thursday’s buying, FIIs had been net sellers for seven straight sessions, with average daily outflows of Rs. 4,144.01 crore.

Focus Shifts to FOMC Minutes and Fed Outlook

Market participants are turning their attention to the Federal Open Market Committee (FOMC) minutes from the April policy meeting, scheduled for release on Wednesday. The minutes are expected to provide additional insight into the Federal Reserve’s monetary policy trajectory.

According to the CME FedWatch tool, market pricing currently implies a 53.7% likelihood that the Fed will raise interest rates at least once this year, with the remaining probability favoring no change in policy. This represents a significant reversal from expectations of two rate cuts that had prevailed before the onset of the war.

Traders have moved away from earlier dovish expectations as higher oil prices have contributed to an upturn in U.S. inflation. Data released last week showed that the U.S. Consumer Price Index (CPI) rose to 3.8% Year-on-Year (YoY) in April, up from 3.3% in March.

USD/INR Technical Picture: Bulls Eye 97.00

USD/INR advanced to around 96.33 at the start of the week, maintaining a clearly bullish near-term profile as the pair trades comfortably above its 20-day Exponential Moving Average (EMA) at 94.93.

The strong rally has driven the 14-day Relative Strength Index close to the overbought threshold near 69, signaling robust upside momentum. However, the steepness of the move suggests that additional gains could face increasing headwinds if buying interest begins to wane.

On the downside, immediate support lies at 96.00, while a more substantial corrective base is seen near the 20-day EMA around 94.93, where trend-following demand is likely to emerge on pullbacks. As long as USD/INR holds above these levels on a closing basis, the broader bullish trend is expected to remain intact, even as the risk of consolidation grows after the recent sharp advance. On the upside, the pair could push further toward 97.00.

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

U.S. CPI Snapshot

How CPI Feeds Into the Fed’s Mandate

Inflation dynamics are captured through the Consumer Price Index (CPI), which is calculated by periodically aggregating the prices of a representative basket of goods and services. The CPI is compiled on a monthly schedule and released by the U.S. Department of Labor Statistics. The Year-on-Year reading compares the reference month’s prices with those from the same month a year earlier.

CPI is a central gauge of inflation and shifts in consumer purchasing behavior. In general, a higher-than-expected CPI reading is considered supportive for the U.S. Dollar (USD), while a lower reading is typically seen as negative for the currency.

The U.S. Federal Reserve (Fed) operates under a dual mandate to foster price stability and maximum employment. Within this framework, inflation of around 2% YoY is viewed as consistent with the Fed’s objectives. Since the pandemic, this inflation pillar has become the weaker leg of the central bank’s mandate. Price pressures have continued to build amid supply-chain disruptions and bottlenecks, with CPI remaining at elevated levels. In response, the Fed has already implemented measures to curb inflation and is expected to maintain a firm stance for the foreseeable future.