Indian Rupee wipes out early week's gains as Oil prices soar
- The Indian Rupee weakens further against the US Dollar amid rising Oil prices.
- Middle East tensions continue to prompt energy supply risks.
- India’s flash HSBC Global PMI data remains strong in October.
The Indian Rupee (INR) extends Thursday’s weakness against the US Dollar (USD) on Friday, wiping out almost all gains made earlier this week. The USD/INR pair jumps to near 94.92 as surging Oil prices due to Middle East tensions have weighed heavily on the Indian currency.
As of writing, the MCX Crude Oil contract expiring on November 19 is up 1.5% to near Rs. 9,620. The Oil price is near its recent highs of Rs. 9,661 posted earlier this week.
Higher Oil prices bode poorly for currencies from economies, such as India, which rely heavily on imports to meet their energy demands.
Middle East tensions flare after Saudi drone attack
Analysts at Commerzbank report that Middle East tensions “intensified after a drone attack on Saudi Arabia's Shaybah oil field killed two people and injured two others,” but note that the impact on crude was ultimately contained. They highlight that “oil prices briefly jumped on reports suggesting a wider withdrawal of US diplomatic personnel from the Gulf,” before the move faded as “Washington clarified that the order was limited to Saudi Arabia,” prompting the market to pare back earlier gains.
The withdrawal of US non-emergency personnel from the Gulf has prompted fears that military aggression in Iran could escalate further.
India’s private sector output remain robust in October
According to the preliminary HSBC Global Purchasing Managers’ Index (PMI) data for October, overall business activity remained stronger. The Composite PMI arrives at 56.7, higher than the final reading of 55.9 in September. Strong service sector activity led to a significant increase in the Composite PMI.
“Private-sector manufacturing activity continued to expand, with growth of output and new orders broadly unchanged at last month’s levels. However, the steady pace of new order growth masks the fastest increase in new export orders since June 2025. Manufacturers responded by increasing their stocks of purchases and finished goods. Input cost inflation eased, while the rise in selling prices softened to its weakest in almost four years,” Pranjul Bhandari, Chief India Economist at HSBC, said.
US PMI data awaited
Investors await the preliminary US S&P Global PMI data for October, which will be published at 13:45 GMT. Both manufacturing and service sector activities are expected to have expanded again, but at a moderate pace.
Technical Analysis: A mean reversion to 20-day EMA looks likely
USD/INR trades at 94.95, keeping a bearish near-term tone on the daily chart as it holds below the 20-day exponential moving average (EMA) at 95.39.
The pair has retreated sharply from the recent highs, and the Relative Strength Index (14) at 39.62 stays just above oversold territory, suggesting that while downside momentum is still present, selling pressure may be losing some intensity.
On the topside, immediate resistance is located at the 20-day EMA around 95.39, which caps recovery attempts and will need to be reclaimed to ease the current downside bias. Looking down, the June 25 low at 94.15 is the key support level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
