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Indian Rupee cracks this week amid higher oil prices, US bond yields

FXStreet · 2026-09-11T05:34:22Z
Indian Rupee cracks this week amid higher oil prices, US bond yields
  • The Indian Rupee faces intense selling pressure against the US Dollar this week.
  • Higher oil prices and a sharp increase in US Treasury Yields led to a significant fall in the Indian currency.
  • Investors await the CPI data from both the US and India.

The Indian Rupee (INR) extends its downward spiral against the US Dollar (USD) for the fourth trading day on Friday, with the USD/INR pair rising to near 95.80. During the week, the pair gained 1.21% as higher oil prices and a significant jump in United States (US) Treasury Yileds battered the Indian currency.

The table below shows the percentage change of Indian Rupee (INR) against listed major currencies this week. Indian Rupee was the weakest against the Japanese Yen.

USD EUR GBP JPY CAD AUD INR CHF
USD 0.18% 0.09% -1.25% 0.19% 0.33% 1.21% 0.77%
EUR -0.18% -0.09% -1.39% 0.01% 0.16% 1.03% 0.61%
GBP -0.09% 0.09% -1.44% 0.10% 0.25% 1.14% 0.69%
JPY 1.25% 1.39% 1.44% 1.52% 1.66% 2.39% 2.09%
CAD -0.19% -0.01% -0.10% -1.52% 0.19% 0.92% 0.59%
AUD -0.33% -0.16% -0.25% -1.66% -0.19% 0.77% 0.43%
INR -1.21% -1.03% -1.14% -2.39% -0.92% -0.77% -0.44%
CHF -0.77% -0.61% -0.69% -2.09% -0.59% -0.43% 0.44%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).

On Friday, the MCX Crude Oil contract expiring on September 21 retreated after posting a fresh multi-month high at Rs. 9,897 to near Rs. 9,500, but is still almost 11% higher this week.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

Meanwhile, stronger-than-expected US Producer Price Index (PPI) data for August, which lifted Federal Reserve (Fed) interest rate hike expectations, have also prompted US Treasury Yields.

Theoretically, a fresh increase in hawkish Fed expectations boosts US Treasury Yields, which ultimately diminish the appeal of riskier assets. As of writing, 10-year US Treasury Yields are down 0.3% to near 4.95%, closer to its record highs of 4.98%, the highest level seen since November 2023, posted on Thursday.

Oil prices rally as US-Iran tensions stoke supply fears

Analysts at Commerzbank report that the black liquid's prices rally as tit-for-tat attacks on oil infrastructure and tankers deepened supply disruption fears.” They stress that “the dominant driver was an escalation in the US-Iran conflict,” with the combination of tanker strikes, Houthi activity and “Iran’s hardened posture” amplifying concerns over a sustained hit to regional flows. According to Commerzbank, this has “deepened fears of a prolonged disruption to energy flows through the Strait of Hormuz, which the US Energy Secretary estimated carries just under 11 million barrels per day (mb/d) of crude and oil products, with a further 3-5 mb/d flowing through bypass pipelines.”

Strong US PPI data boosts hawkish Fed bets

The US PPI report on Thursday showed that headline producer inflation arrived higher at 5.4% Year-on-Year (YoY) in August vs. 5.3% estimates and the July reading of 4.8%. The core PPI - which excludes volatile food and energy items – also grew at a faster pace, arriving at 4.6% YoY in August, as expected, compared to the previous reading of 4.3%.

Hot US PPI figures lifted Fed interest rate hike expectations. According to the CME FedWatch tool, the odds of the Fed raising interest rates at the policy meeting next week have increased to 72.4% from 61.2% seen before the data release.

Investors keenly await US CPI data

After the US PPI data, investors are awaiting the US Consumer Price Index (CPI) report for August, which will be published at 12:30 GMT.

According to economists at TD Securities, US price pressures likely moderated only slightly in August. They “project that core CPI rose 2.3% on a y/y basis, down 10 bps vs July, while headline inflation likely stayed unchanged at 3.4% y/y.” However, they caution that “we see the risks to our forecasts as skewed to the upside given that we're assuming a number of large price declines in tariff-exposed goods categories,” suggesting the outturn could surprise higher if those assumed declines fail to materialize.

India’s CPI data to be key trigger for INR

On the domestic front, India’s retail CPI data for August scheduled for Monday could be the key trigger for the Indian Rupee.

Economists at Societe Generale expect India’s inflation backdrop to turn less comfortable in the near term, projecting that "India's CPI inflation [will] rise to around 4.8% yoy in August 2026, up from 4.4% in July, marking the highest reading under the newly launched CPI series." They note that, if realized, "this would represent the third consecutive month of inflation above the RBI's 4.0% target, further reinforcing the view that inflationary pressures are no longer confined to a few volatile categories but are gradually becoming more broad-based."

Regarding the drivers, Societe Generale highlights that "food inflation is likely to have exceeded 6.0% yoy in August and should remain the single largest contributor to headline CPI," with available price trends pointing to "continued pressure from categories such as sugar, cereals, milk, eggs, edible oils and selected vegetables." A "second source of upward pressure is likely to come from fuel inflation," as "elevated global energy prices, coupled with the lagged effects of earlier domestic fuel price adjustments, suggest that the fuel basket should continue to exert upward pressure on headline inflation." The bank also points out that "with input price pressures remaining elevated and little evidence of relief from global commodity markets, the risk of broader pass-through into consumer prices appears to be rising," while survey-based measures "point toward firmer fuel inflation in August relative to July."

Taken together, Societe Generale argues that "the August CPI print is likely to signal that India's inflation dynamics are becoming less benign. Food inflation remains elevated, fuel inflation continues to firm, and early signs of broader cost pass-through are beginning to emerge." In their view, "a print around 4.8% yoy would not only mark a new high under the revised CPI series but would also reinforce concerns that inflationary pressures are gradually broadening beyond a narrow set of categories."

RBI targets maintaining enough Forex liquidity

In latest comments, RBI Governor Sanjay Malhotra said that the target of the central bank is to maintain "appropriate liquidity". Malhotra added that the central bank has "enough tools to manage liquidity, other than VRRR, such as open market operations or FX swaps".

USD/INR Technical Analysis: Returns comfortably above 20-day EMA

On the daily chart, USD/INR trades at 95.80, holding a constructive bullish bias as it remains above the 20-day Exponential Moving Average (EMA) at 95.22. The pair has rebounded firmly from late-August lows and now trades comfortably over its short-term trend proxy, while the Relative Strength Index (14) near 60 suggests positive but not yet overbought momentum supporting further upside attempts.

On the downside, initial support is located at the 20-day EMA at 95.22, where buyers are likely to re-emerge on dips to defend the nascent uptrend. Looking up, the pair could extend its advance toward the all-time high near 97.10.

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

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.