• The Indian Rupee trades with caution against the US Dollar at the start of the Fed’s policy week.
• Investors expect the Fed to leave interest rates unchanged in the 3.75%-4.00% range.
• Elevated oil prices continue to keep the Indian currency under pressure.

The Indian Rupee (INR) extends its losing streak against the US Dollar (USD) for the third trading day on Monday. The USD/INR pair jumps to near 95.20 as the Indian currency faces pressure due to elevated oil prices.

On Monday, the MCX Crude Oil contract expiring on November 19 recovers to near Rs. 9,672 after a gap down opening. The crude oil price is close to its recent highs of Rs. 9,828 posted on Friday.

Currencies from economies, such as India, which rely heavily on oil imports to meet its energy demands, tend to underperform in a high oil-price environment.

What is keeping oil prices elevated?

According to TD Securities, crude prices remain biased higher in the near term, with analysts warning that “we expect crude oil will remain skewed to the upside in the near term as escalation risk ahead of Israeli elections and US midterm elections remains elevated.” They note that “recent Houthi strikes have seen risk premium pricing in the market increase, while persistent tanker attacks by Iran appear to have been successful in reducing some Hormuz flows,” reinforcing the geopolitical premium embedded in current pricing.

US Dollar trades lower at start of Fed week

The US Dollar trades lower at the start of the week amid caution ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday, and preliminary Q3 Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) Price Index data for September on Thursday.

Analysts at Royal Bank of Canada expect the Fed to keep policy steady at this week’s meeting, with the “Fed expected to hold the fed funds target range unchanged on Wednesday after hiking for the first time since 2023 in September.” While the September move marked a resumption of tightening, RBC notes that “FOMC members continue to signal that more hikes will follow, but comments after the last decision suggest a gradual approach.” In terms of the projected path, the bank reiterates that “we expect two 25-basis-point rate hikes ahead before the end of Q1 2027.”

Other than the Fed’s monetary policy and key economic data releases, investors will pay close attention to Q3 earnings of hyperscalers, including Amazon, Alphabet and Microsoft.

The impact of guidance from hyperscalers regarding their spending plans on Artificial Intelligence (AI) infrastructure would be significant on the US Dollar and US Treasury Yields. In past quarters, hyperscalers issued a substantial amount of debt to fund their AI spending plans, which had resulted in a significant jump in US bond yields.

The guidance on AI spending plans would also have a significant impact on the Indian Rupee, given India is known as anti-AI trade in global markets.

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 95.20, extending its recovery move towards the 20-day Exponential Moving Average (EMA), which is at 95.36. The Relative Strength Index (RSI) has shown a V-shap recovery to near 45.00, reflecting strong demand for the pair at lower levels.

On the topside, initial resistance is located at the 20-day EMA at 95.36, and a daily close above this barrier would help alleviate current selling pressure and open the way to higher levels. On the downside, the 95.00 handle is the immediate support, with June 25 low at 94.16 remainiing the key cushion level.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.