Cautious trading marks the Indian Rupee’s start to the week

• Caution marks trading in the Indian Rupee against the US Dollar as the Fed’s policy week begins.
• An unchanged interest rate range of 3.75%-4.00% is expected by investors at the Fed meeting.
• Pressure on the Indian currency persists as oil prices remain elevated.

Pressure from elevated oil prices keeps the Indian Rupee (INR) on the back foot against the US Dollar (USD), with Friday’s losses intact as the week opens. USD/INR edges higher towards 95.00 as the Indian currency remains under strain.

Despite opening with a gap down of almost 2% to around Rs. 9,612 on Monday, 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 oil imports for their energy needs, including India, typically underperform.

Why are oil prices staying elevated?

A near-term upward bias persists in crude prices, according to TD Securities, whose analysts caution 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,” reinforcing that premium.

Why is the US Dollar softer as Fed week begins?

Caution ahead of a busy US policy and data calendar weighs on the US Dollar as the week begins. The Federal Reserve’s (Fed) monetary policy announcement is due on Wednesday, followed on Thursday by preliminary Q3 Gross Domestic Product (GDP) figures and September’s Personal Consumption Expenditures (PCE) Price Index data.

An unchanged policy setting 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 decision restarted monetary tightening, although RBC observes that “FOMC members continue to signal that more hikes will follow, but comments after the last decision suggest a gradual approach.” For the rate outlook, the bank maintains that “we expect two 25-basis-point rate hikes ahead before the end of Q1 2027.”

Q3 results from hyperscalers, including Amazon, Alphabet and Microsoft, will also draw close investor scrutiny alongside the Fed’s policy decision and major economic releases.

For the US Dollar and US Treasury yields, guidance from hyperscalers on Artificial Intelligence (AI) infrastructure spending would carry significant implications. Substantial debt issuance to finance their AI spending plans in previous quarters had driven a sharp rise in US bond yields.

India’s reputation in global markets as an anti-AI trade means guidance on AI spending plans would have a significant bearing on the Indian Rupee as well.

USD/INR Technical Analysis: Can Selling Pressure Ease?

A bearish near-term outlook persists on the daily USD/INR chart, with the pair trading at 94.9455, below the 20-day exponential moving average (EMA) of 95.3456. Following a sharp pullback from the recent 96.80 area, any recovery faces an immediate hurdle at the EMA. Meanwhile, a Relative Strength Index (RSI) reading around 39 points to weak but stabilising downside momentum after the indicator tested oversold territory earlier in the month.

A daily close above initial resistance at the 20-day EMA of 95.3456 would ease the prevailing selling pressure and pave the way for higher levels. Momentum support on the downside is signalled by the RSI reading of 39.62. If the oscillator sustains a decline towards the 30 zone, it would strengthen the bearish bias 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.)