Indian rupee strengthens past 94/$ as oil slides, foreign inflows return

Mumbai witnessed the Indian rupee surpassing 94 per dollar on Friday, marking a notable improvement in its performance this year. The currency has climbed to its highest level since April 22, buoyed by the unwinding of the once-dominant AI trade and a significant drop in oil prices following the Democrats' victory in the US midterm elections.

Dilip Parmar, a currency research analyst at HDFC Securities, explained that the recent strengthening of the rupee is due to a combination of softer crude oil, easing yields, and renewed foreign inflows after the US midterm elections. The Indian rupee has gained 1.1% for the week, placing it as the second-best performer among Asian currencies.

In 2026, global investors favored technology-heavy markets, including the US and North Asia, due to the AI trade. However, India's equity market had limited exposure to the semiconductor and AI infrastructure supply chain, negatively impacting the rupee. Analysts from J.P. Morgan, Goldman Sachs, and BlackRock have recently highlighted India's relative appeal for global investors looking to diversify away from AI-heavy markets, citing the country's broad-based equity market and domestic growth drivers.

Foreign investors have increased their purchases of Indian equities, investing nearly $3 billion this week, with $1.6 billion coming in on Thursday alone. The decline in oil prices also provides relief for the rupee, as India imports nearly 90% of its oil needs. The Reserve Bank of India has announced additional measures to support the rupee, including a special window to provide dollars to government-owned oil importers directly from its forex reserves.

Analysts at HDFC Securities and Kotak Securities predict that the rupee may continue appreciating if foreign inflows into debt and equity markets persist.