Lower oil prices support Indian Rupee’s continued winning streak against US Dollar

The Indian Rupee extends its advance against the US Dollar as softer oil prices lend support.
Oil’s risk premium narrows as hopes build for a diplomatic resolution between the US and Iran.
Global markets look to the US midterm elections as their next major catalyst.

The Indian Rupee (INR) maintains its upward momentum against the US Dollar (USD) on Tuesday, marking a third consecutive trading day of gains. Early trading sees USD/INR decline 0.15% to around 94.83.

Continued selling pressure on oil is supporting the Indian currency, with optimism growing over a diplomatic resolution between the United States (US) and Iran.

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

At the time of writing, the MCX Crude Oil contract due to expire on November 19 trades near Rs. 9,222, up 1.65%. Despite that rise, the contract remains almost 7.5% below its recent multi-month peak of Rs. 9,972.

Can diplomacy headlines further reduce oil’s risk premium?

Some geopolitical premium has already come out of oil prices, according to TD Securities. The firm points to recent reports indicating that US President Donald Trump is prepared to allow more time for diplomacy and "signaling attacks may not be imminent immediately before/after the midterms," which have resulted in "a portion of the geopolitical risk premium priced out of crude oil and petroleum products." As market positioning and sentiment respond to the changing geopolitical backdrop, its strategists say that "with flows elevated, and a large portion of recent upside attributed to a risk premium, these headlines will have an increasingly large impact on the market,"

Persistent geopolitical risks nevertheless remain a source of price support. TD Securities warns that “headlines alone are unlikely to shed the whole risk premium.” Explaining its caution, the firm says that “so long as there is no concrete conclusion to the war, and tanker and Houthi attacks remain prevalent, we do not anticipate a complete erosion of the risk premium via diplomacy headlines alone,”

For economies such as India that depend heavily on oil imports to meet their energy requirements, cheaper oil is favourable for their currencies.

What could the US midterm elections mean for markets?

Brown Brothers Harriman (BBH) strategists flag that “the US midterm elections will be held on Tuesday,” and that “Democrats widely expected to win the House of Representatives.” Turning to the upper chamber, they say “Senate control is much closer, but the tide favors the Democratic Party,” since “Democrats need a net gain of four seats to secure a majority in the Senate”. They describe that goal as “within reach as Republicans are defending six of the seven toss-up seats.”

A Democratic victory in both chambers may produce only a limited initial market response, in BBH’s assessment. The firm notes that betting markets “favor a Democratic sweep,” with Polymarket and Kalshi “putting the odds around 70%.” BBH says this “points to a relatively muted initial market reaction if Democrats win both chambers,” while “a Republican Senate hold would be the bigger surprise and could spark more market volatility.”

USD/INR Technical Analysis: Can the Pair Reclaim Its 20-Day EMA?

A near-term bearish bias persists on the daily chart as USD/INR, trading at 94.83, remains below its 20-day Exponential Moving Average (EMA) of 95.21. Staying under this short-term trend indicator suggests that rallies continue to face a ceiling. Meanwhile, the Relative Strength Index (14) reads 38.9, below the neutral 50 mark, signalling continued downward pressure rather than an extreme oversold condition.

To ease the prevailing bearish bias, USD/INR would need a daily close above immediate resistance at the 20-day EMA of 95.21. The available dataset identifies no nearby technical support levels, so traders may turn to recent lows and price behaviour for temporary floors. Momentum indicators, however, suggest that rebounds could remain constrained while the pair stays below the 95.21 region.

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

Indian Rupee: Frequently Asked Questions

Which factors are the main drivers of 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 reliance on imported Oil, and movements in the US Dollar, since most trade is settled in USD. The amount of foreign investment also matters. In addition, the Rupee is significantly influenced by interest rates set by the Reserve Bank of India (RBI) and by the central bank’s direct intervention in FX markets to stabilise the exchange rate.

How do Reserve Bank of India decisions affect the Indian Rupee?

To support trade through exchange-rate stability, the Reserve Bank of India (RBI) regularly intervenes in the foreign exchange market. It also adjusts interest rates in an effort to keep inflation at its 4% target. An increase in interest rates generally supports the Rupee, partly through the ‘carry trade’. Under this strategy, investors borrow in lower-interest-rate countries and invest in countries offering relatively higher rates, seeking to earn 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 increase demand for the currency, while a narrowing trade deficit will eventually strengthen it. Higher interest rates are also supportive, particularly when real rates, calculated as interest rates minus inflation, rise. When investors are more willing to take risk, inflows of Foreign Direct and Indirect Investment (FDI and FII) can increase, providing further support to the Rupee.

What effect does inflation have on the Indian Rupee?

The Rupee generally comes under pressure when inflation is high, especially when it exceeds levels in India’s peer economies, as this reflects a loss of currency value through excess supply. By making exports more expensive, inflation also results in more Rupees being sold to buy foreign imports, which weighs on the currency. However, higher inflation typically prompts the Reserve Bank of India (RBI) to increase interest rates. That response can support the Rupee by attracting greater demand from international investors. Lower inflation has the reverse effects.