Indian Rupee: Elevated Oil Prices Keep INR Lagging USD — OCBC

Despite the overall weakness of the US dollar, the Indian rupee has failed to benefit. OCBC strategists Sim Moh Siong and Christopher Wong noted that elevated oil prices and sustained dollar demand from importers are exerting major pressure on the Indian rupee, keeping it persistently lagging among non-USD currencies.

**Oil Prices and Import Demand Form Dual Pressure**

As a major global oil importer, India is highly sensitive to crude price fluctuations. The strategists stated that with oil prices and geopolitical risks back in the market spotlight, higher crude prices directly weigh on the Indian rupee. Meanwhile, dollar buying from importers has further exacerbated the rupee's weakness. USD/INR had previously approached a one-month high, indicating strong market inclination to sell the rupee.

**Central Bank Intervention and Fund Inflows Provide a Buffer**

Dollar-selling actions related to the Reserve Bank of India are limiting the upside in USD/INR, offering some support to the rupee. However, a key incremental source of foreign exchange inflows is weakening. The early closure of the FCNR(B) swap window has reduced the forex inflows previously channeled through this avenue. Market reports suggest that while a decline in global oil prices and the return of foreign investors to Indian equities had earlier pushed the rupee to a one-month high, this support has faded amid the current rebound in oil prices.

**Short-Term Risks Skew to the Upside**

Overall, OCBC strategists believe that the risk for USD/INR remains skewed to the upside, with resistance at the 95.90-96.00 range. At the time of writing, USD/INR was trading near 95.63709, not far from that resistance zone. Going forward, moves will closely track oil price changes and the scale of Reserve Bank of India intervention.