Weaker US Dollar and lower oil prices drive further Indian Rupee gains

Multiple supportive factors extend the Indian Rupee’s rally against the US Dollar.
Riskier currencies gain appeal as the US Dollar weakens and oil prices decline.
Midterm elections deliver a setback for US Republicans.

94.32 marks a two-month low for USD/INR. On Thursday, the Indian Rupee (INR) gains against the US Dollar (USD) for the sixth consecutive trading day. Heavy US Dollar selling and sharply lower oil prices support the move, following a setback for 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 leaves the US Dollar Index (DXY) near 101.25. The index, which measures the Greenback against six major currencies, remains close to the monthly low of 101.10 reached the previous day.

In oil markets, the MCX Crude Oil contract due to expire on 19 November trades near Rs. 8,222, down 1.7%. Over the past few days, the oil price has retreated almost 17.50% from its recent highs of Rs. 9,972.

For economies heavily reliant on imported oil to meet energy demand, including India, cheaper crude supports their currencies.

Expectations surrounding Democratic control of both the Senate and the House of Representatives are putting the US Dollar under heavy selling pressure. ING said such an outcome 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)”.

2027 Dollar outlook weakens as US political tensions rise

US politics could pose another medium-term obstacle for the Dollar, according to ING analysts. Their assessment is that “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.” They also note that “the potential for a prolonged government shutdown in mid-2027 adds to the case for a weaker dollar next summer,” underscoring their view that mounting political tensions may increasingly erode the currency’s appeal.

Iran war escalation fears recede after Republican defeat

Oil prices have dropped 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 meanwhile returned to almost pre-war levels, albeit at a higher cost, Reuters reported, citing analysts. The strait is a critical 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,”

94.32: USD/INR Technical Analysis

A decline to 94.32 on Thursday keeps USD/INR’s near-term outlook bearish. Spot continues to trade below the 20-period Exponential Moving Average (EMA) at 95.08, leaving this dynamic resistance intact. At 33.9, the Relative Strength Index (RSI) sits just above oversold territory, suggesting selling pressure remains in place but is becoming stretched.

The June 25 low of 94.16 provides key support on the downside. For a corrective rebound to become possible and current bearish pressure to ease, the pair would first need to regain the 20-day EMA near 95.08, its initial resistance level.

(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 drive the Indian Rupee?

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; the US Dollar’s value, as most trade is settled in USD; and foreign investment levels. The Reserve Bank of India (RBI) also has a major influence through the interest rates it sets and its direct intervention in FX markets to stabilise the exchange rate.

How does Reserve Bank of India policy affect the Indian Rupee?

A 4% inflation target guides the Reserve Bank of India’s (RBI) interest rate adjustments. The RBI also intervenes actively in forex markets to keep the exchange rate stable and facilitate trade. Higher rates generally support the Rupee through the ‘carry trade’: investors borrow in lower-interest-rate countries and invest those funds in countries offering relatively higher rates, earning the difference.

Which macroeconomic indicators affect the Indian Rupee’s value?

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 lift demand for the currency, while a smaller trade deficit will eventually strengthen it. Higher interest rates are supportive too, particularly real rates, which are interest rates minus inflation. When risk appetite improves, increased inflows of Foreign Direct and Indirect Investment (FDI and FII) can also benefit the Rupee.

How does inflation affect the Indian Rupee’s value?

The Rupee generally suffers when inflation is high, especially relative to India’s peers, as this reflects devaluation through oversupply. By raising export costs, inflation also results in more Rupees being sold to pay for foreign imports, adding pressure on the currency. However, higher inflation usually prompts the Reserve Bank of India (RBI) to increase interest rates. That can support the Rupee by attracting greater demand from international investors. Lower inflation has the opposite effect.