Indian Rupee makes a cautious start to the week

• With the Fed’s policy decision due this week, the Indian Rupee begins trading cautiously against the US Dollar.
• The 3.75%-4.00% interest rate range is expected to remain in place at the Fed’s meeting, according to investors.
• Persistently high oil prices weigh on the Indian currency.

Elevated oil prices put pressure on the Indian Rupee (INR) as the week begins, leaving it unable to recover Friday’s losses against the US Dollar (USD). Against this backdrop, USD/INR edges higher towards 95.00.

Despite opening almost 2% lower on Monday at around Rs. 9,612, the MCX Crude Oil contract expiring on 19 November remains near Friday’s recent high 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 their peers.

Geopolitical risks keep oil prices elevated

TD Securities sees the near-term balance of risks for crude prices tilted upwards. Its analysts warn 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.” Highlighting the geopolitical premium reflected in current prices, they add 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,”

US Dollar slips as Fed decision approaches

Wednesday’s Federal Reserve (Fed) monetary policy decision, followed on Thursday by preliminary Q3 Gross Domestic Product (GDP) figures and September’s Personal Consumption Expenditures (PCE) Price Index, keeps investors cautious. The US Dollar is trading lower as the week gets under way.

An unchanged policy stance is the expectation of analysts at Royal Bank of Canada for this week’s meeting, with the “Fed expected to hold the fed funds target range unchanged on Wednesday after hiking for the first time since 2023 in September.” September’s increase restarted the tightening cycle, although RBC points out that “FOMC members continue to signal that more hikes will follow, but comments after the last decision suggest a gradual approach.” Setting out its forecast, the bank reiterates that “we expect two 25-basis-point rate hikes ahead before the end of Q1 2027.”

Alongside the Fed decision and major economic releases, Q3 results from hyperscalers, including Amazon, Alphabet and Microsoft, will be closely watched by investors.

Guidance from these hyperscalers on planned Artificial Intelligence (AI) infrastructure spending would have a substantial bearing on both the US Dollar and US Treasury yields. In previous quarters, sizeable debt issuance to finance their AI investment plans led to a marked rise in US bond yields.

India’s reputation in global markets as an anti-AI trade means that guidance on AI expenditure would also have a considerable effect on the Indian Rupee.

USD/INR Remains Under Pressure Below Its 20-Day EMA

Trading at 94.9455 on the daily chart, USD/INR retains a bearish short-term outlook below its 20-day exponential moving average (EMA) of 95.3456. Following the sharp pullback from around 96.80, this average now provides an immediate barrier to recovery. Meanwhile, the Relative Strength Index (RSI), at around 39, points to weak but stabilising downward momentum after testing oversold territory earlier in the month.

A daily close above the first resistance level, the 20-day EMA at 95.3456, would ease the prevailing selling pressure and allow scope for further gains. On the downside, the RSI reading of 39.62 indicates momentum support. A sustained decline in the indicator towards 30 would strengthen the bearish outlook and leave USD/INR vulnerable to further losses below the 95 mark.

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