Indian Rupee falls back as oil prices rally further

The Indian Rupee falls back against the US Dollar on Wednesday after a slight recovery move the previous day.
Fears of global energy supply disruption intensify on Bab el-Mandeb Strait closure.
FIIs turned out to be net buyers on Tuesday.

Sagar Dua FXStreet

The Indian Rupee (INR) opens lower against the US Dollar (USD) on Wednesday after a slight relief the previous day. The USD/INR pair rises to near 96.53 as a fresh surge in oil prices due to intensifying fears of further global energy supply disruptions has weakened the Indian currency.

In the opening trade, the MCX Crude Oil contract expiring on August 19 posts a fresh over five-week high at Rs. 8,253.

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.

Yemen Houthis close Bab el-Mandeb Strait

The closure of the Bab el-Mandeb Strait, the southern gateway of the Red Sea, by Yemen's Iran-aligned Houthis that halts oil exports from Saudi Arabia to Asian economies in retaliation for a Saudi blockade of ports and airports in Houthi-controlled north-western Yemen, has escalated fears of further energy supply disruption.

According to a Reuters report, the Bab el-Mandeb Strait closure could reduce global oil supply by 7%. This comes at a time when overall energy supply is already squeezed due to the closure of the Strait of Hormuz, a critical chokepoint to almost 20% of global energy supply.

The Saudi-led coalition has strongly criticized Iran’s action, saying, “Such threats are a blatant violation of international law and fall under acts of maritime piracy,” Reuters reports.

Earlier in the day, US Secretary of State Marco Rubio told Southeast Asian foreign ministers that Iranian control of the Hormuz would set a “dangerous precedent with repercussions beyond the Middle East”.

FIIs selling streak halts on Tuesday

Foreign Institutional Investors (FIIs) turned out to be net buyers on Tuesday after remaining net sellers for six straight trading days. On Tuesday, overseas investors pumped an investment worth Rs. 1,650.16 crore. In the July 13-20 period, FIIs offloaded their stake worth Rs. 10,240.80 crore.

However, the sentiment of foreign investors toward the Indian equity market is expected to remain depressed as surging oil prices will increase the import bill of the Indian government, a scenario that diminishes the center’s ability to invest in infrastructure and development.

Technical Analysis: USD/INR reflects strength as 20-day EMA advances

USD/INR trades higher at around 96.53, maintaining a bullish near-term bias as it holds above the 20-period exponential moving average (EMA) at 95.7889.

The pair is extending its recent advance, and the Relative Strength Index (14) at 62.38 stays in positive territory, hinting that buyers still retain control.

On the downside, immediate support is located at the 20-period EMA at 95.79, where a pullback could attract fresh buying interest as long as this floor holds. Looking up, the pair aims to revisit the all-time high at around 97.10.

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

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.

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