Indian Rupee holds onto two-week losses against US Dollar

The Indian Rupee (INR) opens on a flat note against the US Dollar (USD), but is close to its two-week low at around 95.75. The USD/INR pair remains under pressure due to elevated oil prices. Discussions between the United States and Iran regarding the reopening of the Strait of Hormuz, a critical chokepoint for global energy supply, have stalled. Oil prices remain high, with crude oil trading near Rs. 8,130, close to a three-week high of Rs. 8,170. Economies like India, which heavily rely on oil imports, tend to underperform in high-oil-price environments. Analysts at BNY note that hopes for a rapid reopening of the Strait of Hormuz have faded. US President Donald Trump has stated he will not revive the expired U.S.–Iran truce, leaving the conflict unresolved. Washington demands unrestricted passage through the strait, while Iran insists on joint management with Oman. Shipping activity remains disrupted, with fresh attacks near the strait reinforcing supply concerns. BNY concludes that persistent Middle East tensions keep crude oil prices elevated, adding to inflationary risks in markets already stretched. On August 31, the Reserve Bank of India (RBI) unexpectedly closed its Foreign Currency Non-Resident (Bank) deposit swap facility early, ahead of schedule, due to strong inflows of USD52.3 billion. Analysts at Commerzbank suggest this closure reflects diminishing benefits amid rising liquidity and balance-sheet costs. The early closure has generated substantial rupee liquidity and supported demand for government bonds, but the scheme is not without costs. Looking ahead, Commerzbank expects the RBI to rely on spot and forward FX intervention if depreciation pressures return. Any rate hikes would likely require sustained INR weakness and inflation pressure. Oil prices remain the key external driver for the INR, given India’s heavy reliance on crude imports. The RBI has intervened in spot and Non-Deliverable Forwards (NDFs) markets to support the depreciating rupee multiple times in recent months. Technical analysis shows USD/INR trading at 95.76, with a mild bullish bias above the 20-period Exponential Moving Average (EMA) near 95.58. The pair has reclaimed the 38.2% Fibonacci retracement at 95.63, suggesting support for dips. Resistance levels are at 95.87 (50% retracement) and 96.12 (61.8% retracement). A daily close above 96.12 could push the pair toward 96.46 and the recent swing high of 96.90. Initial support is at 95.63, reinforced by the 20-period EMA at 95.58, with deeper support at 95.33 if sellers regain momentum. The INR is highly sensitive to external factors, including crude oil prices, USD strength, foreign investment flows, and RBI interventions. The RBI actively manages the exchange rate to facilitate trade and control inflation at its 4% target. Higher interest rates strengthen the INR due to the carry trade, while inflation and economic growth influence demand for the currency. A risk-on environment boosts FDI and FII inflows, supporting the INR. Higher inflation increases export costs and reduces Rupee demand, while RBI rate hikes can strengthen the currency by attracting international investors.