Indian Rupee hits fresh 10-day low amid boiling oil prices

• The Indian Rupee faces intense selling pressure as oil prices continue to soar.
• Oil prices extend their rally as US-Iran tensions remain intact.
• The RBI seems to be failing to counter excessive downside moves in the Indian currency.

The Indian Rupee (INR) extends its losing run against the US Dollar (USD) for the third trading day on Thursday. The USD/INR pair posts a fresh 10-day high at 95.47 as the ongoing rally in oil prices continues to batter the Indian currency.

In the opening session, the MCX Crude Oil contract expiring on September 21 trades 0.5% higher, closer to its over three-month high of Rs. 9,189.

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.

Oil rally extends as conflict risks keep market tight

According to TD Securities, crude prices continue to rally as the conflict backdrop shows “seemingly no end to conflict in sight,” with “another round of escalation and an apparent preference for limited attacks and economic squeeze as opposed to deal-making” keeping the energy market on “a continued tightening trajectory.” The bank notes that “while the level of market deficit in crude has eased amid a stabilization of higher dark flow volumes, the market remains tight overall,” reinforcing the view that “the path of least resistance remains to the upside for crude oil even as prices reach triple digits again.”

RBI remains active to counter excessive volatility in INR

The Reserve Bank of India (RBI) continues to intervene in spot and Non-Deliverable Forward (NDF) markets to support the Indian currency against one-way excessive depreciating moves.

"The RBI has maintained its intervention, including a fairly forceful presence at one point yesterday. However, that support has so far provided only limited relief."

Strong foreign flows received by the Indian central bank through the Foreign Currency Non-Resident (FCNR) (B) window indicate the RBI has significant liquidity to support the Indian currency.

Societe Generale’s EM strategists highlight that the Reserve Bank of India has materially strengthened its external buffers, noting that “the RBI disclosed earlier this month that it had raised $136.38bn through its FX mobilisation schemes, including the FCNR(B) window launched in early June, significantly bolstering reserve buffers and intervention capacity.” The bank argues that this sizeable build-up in reserves enhances the RBI’s ability to manage currency volatility and underpins its more constructive stance on the Rupee.

US inflation data awaited

This week, the major trigger for global markets is the United States (US) Consumer Price Index (CPI) for August, which will be released on Friday.

According to TD Securities, the upcoming August CPI report should show that underlying price pressures remain contained, with the bank expecting that "underlying inflation stayed under control, with core likely rising 0.19% m/m (2.3% y/y)." Strategists there highlight that "the services segment should be the main driver, while core goods prices likely acted as a drag by posting a modest m/m drop." In contrast, they anticipate that "headline CPI will likely be a stronger 0.37% m/m (3.4% y/y) due to rising energy prices and a slight pickup in food inflation."

Technical Analysis: USD/INR jumps higher to near 95.50

In the daily chart, USD/INR trades at 95.47. The pair quickly returns above the 20-period exponential moving average (EMA) at 95.14 after last week's decline, which turns the near-term bias broadly neutral.

A V-shaped recovery in the Relative Strength Index (RSI) into the 40.00-60.00 zone suggests strong demand at lower levels.

On the downside, the June low at 94.15 is the key support level. Looking up, the pair is expected to find a hurdle near 96.00.

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