Indian Rupee extends rally for the third trading day on Wednesday

The Indian Rupee rallies further on RBI’s forceful measures to curb US Dollar’s demand.
Oil prices recover due to ongoing Middle East tensions.
The US Dollar corrects ahead of the US CPI data for September.

The Indian Rupee (INR) extends the rally against the US Dollar (USD) for the third trading day on Wednesday, driven by fresh Reserve Bank of India’s (RBI) measures to curb the US Dollar’s (USD) demand. In India's late afternoon hours, the USD/INR pair is down 0.35% to slightly below 95.00, the lowest level seen in over a month.

Over the weekend, the RBI unveiled several measures, including special window for Public Sector Undertaking’s (PSU) Oil Marketing Companies (OMCs) for buying US Dollars against crude oil imports and tighter hedging rules, in an attempt to curtail demand for US Dollars.

Meanwhile, market experts doubt that the near-term rally in the Indian currency is sustainable due to external pressures.

RBI steps seen stabilising INR but not reversing broader depreciation

Strategists at OCBC argue that the RBI’s “increasingly forceful response may help contain near-term INR depreciation pressures,” but they remain “cautious about extrapolating the latest rebound into a sustained recovery.” They note that “higher hedging costs may temper forward USD demand, but could also discourage genuine corporate hedging,” while “the special USD window for oil companies shifts demand away from the spot market rather than reducing India’s underlying US dollar requirements.”

OCBC adds that “we may still see room for some near-term INR gains, but the sustainability of the move will depend on whether portfolio outflows moderate and external pressures from oil prices and US yields ease.” In their view, “for now, the policy measures may help establish a firmer near-term footing for INR, rather than mark a decisive reversal in its broader depreciation trend.”

Oil prices rebound as Middle East risks remain intact

Oil prices have recovered from its monthly low of Rs. 8,338 in the past week as supply risks from the Middle East remain intact due to tensions between Saudi Arabia and Iran-backed Houthis. However, the MCX Crude Oil contract expiring on october 19 is 0.16% down to near Rs. 8,940 at press time.

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.

The Houthis attacked an administrative building belonging to state-owned oil firm Saudi Aramco in the city of Dhahran, causing a limited fire, Saudi Arabia’s energy ministry said on Wednesday, Reuters reported.

Lower US Dollar weighs on USD/INR

The correction in the US Dollar ahead of the release of the United States (US) Consumer Price Index (CPI) data for September at 12:30 GMT has also weakened the USD/INR pair.

In the Asian trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% lower to near 102.10. The DXY has retreated from its yearly high of 102.61 posted on Monday.

Investors will pay close attention to the US CPI data to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.

The US CPI report will likely to show that the headline inflation rose to 3.6% Year-on-Year (YoY) from 3.4% in August. The core CPI – which excludes volatile food and energy items – is seen arriving at 2.5% YoY, higher than the previous reading of 2.4%.

India's WPI Inflation rises further

India's Consumer Price Index (CPI) at the wholesale level rises at a faster pace of 11.39% Year-on-Year (YoY), faster than the previous reading of 9.92%. A faster growth in India's factory-level inflation could prompt expectations of more interest rate hikes by the RBI this year.

Technical Analysis: USD/INR sees more downside towards 94.30

In the daily chart, USD/INR trades at 94.95, keeping a bearish near-term tone as spot holds below the 20-day Exponential Moving Average (EMA) at 95.92.

The break under the short-term trend gauge suggests the pair remains under corrective pressure after recent overbought conditions, while the Relative Strength Index (14) easing toward 34 hints at fading bullish momentum rather than outright oversold stress.

On the topside, immediate resistance is located at the 20-day EMA near 95.92, where any recovery would likely meet initial supply and define whether the latest pullback is merely a pause within the broader uptrend or the start of a deeper correction. Looking down, the pair could extend its decline towards the September low near 94.30.

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

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.