Rupee Slips as Firm Crude, Fed Risks Weigh on Sentiment

Key Moments

Oil-Driven Pressure Keeps Rupee Under Strain

The Indian Rupee (INR) continues to lose ground against the US Dollar (USD), marking a third consecutive day of declines on Monday. The USD/INR pair advances toward 95.25 as sustained strength in crude oil prices exerts renewed pressure on the Indian currency.

On Monday, the MCX Crude Oil futures contract expiring on November 19 rebounds after a gap-down open, trading near Rs. 9,672. This brings prices back within sight of Friday’s recent high at Rs. 9,828.

Currencies of oil-import-dependent economies such as India tend to lag in environments where crude prices remain elevated, as higher energy import costs weigh on external balances and sentiment.

Why Crude Prices Remain Supported

TD Securities attributes the persistent strength in crude to ongoing geopolitical tensions and event risks. The firm notes that crude prices are still tilted higher in the near term, stating that “we expect crude oil will remain skewed to the upside in the near term as escalation risk ahead of Israeli elections and US midterm elections remains elevated.”

TD Securities also highlights the impact of regional disruptions, observing that “recent Houthi strikes have seen risk premium pricing in the market increase, while persistent tanker attacks by Iran appear to have been successful in reducing some Hormuz flows,” which reinforces the geopolitical premium currently embedded in oil pricing.

US Dollar Softens Ahead of Fed Decision

The US Dollar begins the week on a weaker footing as traders turn cautious ahead of the Federal Reserve’s monetary policy announcement on Wednesday. Market participants are also preparing for Thursday’s releases of preliminary Q3 Gross Domestic Product (GDP) figures and the Personal Consumption Expenditures (PCE) Price Index data for September.

Analysts at Royal Bank of Canada (RBC) expect the Fed to leave its policy rate unchanged at this week’s meeting. They observe that the “Fed expected to hold the fed funds target range unchanged on Wednesday after hiking for the first time since 2023 in September.” While the September adjustment represented a renewed tightening step, RBC points out that “FOMC members continue to signal that more hikes will follow, but comments after the last decision suggest a gradual approach.”

Looking ahead, RBC reiterates its expectations for the policy path, stating that “we expect two 25-basis-point rate hikes ahead before the end of Q1 2027.”

Hyperscaler Earnings, AI Spending, and Market Implications

Beyond central bank policy and macroeconomic releases, investors are closely monitoring Q3 earnings from major hyperscalers, including Amazon, Alphabet and Microsoft. Market focus is centered on how these firms guide their capital expenditure on Artificial Intelligence (AI) infrastructure.

Guidance on AI-related spending plans is considered important for both the US Dollar and US Treasury yields. In previous quarters, hyperscalers issued substantial amounts of debt to finance AI investments, contributing to a pronounced increase in US bond yields.

The direction of AI spending intentions is also viewed as a key driver for the Indian Rupee, as India is regarded as an anti-AI trade in global markets.

USD/INR Technical Landscape

From a technical perspective, USD/INR is trading around 95.25 on the daily chart, extending its rebound toward the 20-day Exponential Moving Average (EMA), located at 95.37. The Relative Strength Index (RSI) has staged a V-shaped recovery, moving back toward 46.25 and signaling solid demand for the pair at lower levels.

On the upside, the first resistance is aligned with the 20-day EMA at 95.37. A daily close above this level would help ease prevailing selling pressure and could pave the way for additional gains. On the downside, immediate support is seen near the 95.00 level, while the June 25 low at 94.16 serves as a critical support zone.