Indian Rupee gains as oil prices remain broadly in corrective phase

The Indian Rupee (INR) strengthened again on Tuesday versus the US Dollar (USD), with the USD/INR pair falling to around 95.65. The gain was attributed to the consistent decrease in oil prices. On Tuesday, the MCX Crude Oil contract, expiring on October 19, rose 1.2% to nearly Rs. 8,940 but remained close to its 12-day low of Rs.

8,753, which was noted on Monday. The decline in oil prices is beneficial for currencies of countries with high oil import reliance, such as India. Oil prices have been pressured due to optimism about increased shipments from Saudi Arabia, which has pledged to expand oil exports. However, financial experts caution that the recent drop in oil prices may be constrained by ongoing tensions between Saudi Arabia and Iran-backed Houthis.

While Saudi authorities claim Houthis' attacks on oil infrastructure have been thwarted, analysts at OCBC argue that persistent supply and geopolitical risks keep near-term oil price declines limited. Upcoming meetings among Gulf nations, the US, and Iran could potentially impact oil supply and prices. A favorable outcome, such as increased oil supply, would support the US Dollar and help calm global inflation concerns.

The US Dollar's recent strength is linked to Federal Reserve (Fed) interest rate hike expectations. Last week, the Fed raised rates by 25 basis points to 3.75%-4.00%, with further hikes anticipated this year. HSBC analysts note that the Dollar strengthened following the Fed's decision, with several participants anticipating additional rate hikes in 2027.

The USD/INR pair is trading above the 20-day exponential moving average (EMA) at 95.53, indicating a bullish bias. Immediate support is seen at the 20-day EMA at 95.53, followed by 95.00. The previous week's high around 96.00 is the next hurdle for the USD/INR pair.