USD/INR holds steady at the start as rising oil prices put pressure on the Indian Rupee

Indian Rupee Faces Pressure Amid Rising Oil Prices and Foreign Fund Outflows

At the beginning of the week, the Indian Rupee (INR) is treading carefully against the US Dollar (USD), with the USD/INR pair hovering close to its weekly peak of 90.66. The Rupee's weakness is largely attributed to surging oil prices and persistent withdrawals by overseas investors from Indian equities.

Countries that depend heavily on imported oil for their energy requirements often see their currencies come under significant selling pressure when crude prices climb.

Since Thursday, global oil prices have surged by nearly 6% due to concerns over potential supply interruptions following civil unrest in Iran, which has reportedly resulted in the deaths of almost 500 people. According to analysts at ANZ, as cited by Reuters, there are increasing calls for oil sector workers in Iran to strike, putting approximately 1.9 million barrels per day of oil exports at risk of being disrupted.

Additionally, the ongoing sell-off by Foreign Institutional Investors (FIIs) in Indian stocks continues to weigh on the Rupee. In January alone, FIIs have sold holdings worth Rs. 11,786.82 crore. This trend is being fueled by escalating trade tensions between the United States and India, prompting international investors to reduce their exposure to Indian equities.

On the domestic front, market participants are awaiting the release of India's December Consumer Price Index (CPI) data, scheduled for 10:30 GMT. The report is anticipated to indicate a year-on-year inflation rate of 1.5%, up from 0.71% in November, signaling mounting price pressures.

Market Highlights: Rupee Slides as US Dollar Reacts to Trump-Powell Dispute

• The Indian Rupee continues to weaken against the US Dollar, even as the Dollar itself retreats sharply following criminal allegations against Federal Reserve Chair Jerome Powell.
• Currently, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is down 0.12% near 99.10, after briefly touching a monthly high of 99.25.
• On Friday, the US Department of Justice issued multiple subpoenas to the Federal Reserve, threatening criminal proceedings against Powell over remarks made during his Senate testimony last June regarding a $2.5 billion renovation of historic buildings.
• Powell responded by affirming his commitment to act impartially and stated that the new legal threat is unrelated to his testimony or the renovation project, but rather serves as a pretext. He emphasized that the charges stem from the Fed's independent approach to setting interest rates, which may not align with the president's preferences.
• Historically, President Trump has repeatedly criticized Powell for not cutting interest rates more aggressively.
• Looking ahead, investors are turning their attention to the upcoming US CPI data for December, set for release on Tuesday. The inflation figures are expected to play a crucial role in shaping the Fed's policy outlook. Economists predict that core inflation in the US will accelerate to 2.7% year-on-year, up from 2.6% in November, with overall inflation also rising to 2.7%.
• Last Friday, stronger-than-expected US labor market data, including a drop in the unemployment rate to 4.4% and robust wage growth, bolstered the US Dollar. The Nonfarm Payrolls report showed unemployment falling from 4.6% to 4.4%, surpassing forecasts, while average hourly earnings increased at an annual rate of 3.8%, outpacing both expectations and the previous reading of 3.6%.

Technical Outlook: USD/INR Maintains Strength Above 20-Day EMA

On the daily chart, USD/INR is trading at 90.4665, remaining above the upward-trending 20-day Exponential Moving Average (EMA) at 90.2578. This positioning keeps the short-term outlook positive as the average continues to rise. The Relative Strength Index (RSI) stands at 56, indicating steady momentum without signs of overbought conditions, suggesting the potential for further gains as long as the price stays above the average.

Should the pair pull back, initial support is likely near the 20-EMA at 90.2578. A clear move below this level could signal a shift toward sideways movement rather than continued upward momentum. As long as the RSI remains above 50, declines are expected to be limited and upward moves could persist. However, a drop in the RSI below 50 would indicate waning momentum.