USD vs INR: Rupee extends fall to lifetime low; what is dragging it down

USD vs INR: The rupee weakened further on Tuesday and hit a fresh record low in early trade. The currency touched 95.40 against the US dollar. This comes after it had already closed at its weakest-ever level of 95.23 in the previous session. The rupee has now fallen sharply over two consecutive sessions, tracking global volatility and sustained dollar strength.

The decline reflects a mix of global risk aversion and domestic pressures. Market participants are closely watching geopolitical developments, crude oil prices, and foreign fund flows, all of which are influencing the currency’s movement.

Dollar rebound and global tensions drive fall

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According to Manoj Kumar Jain, the rupee’s weakness is largely linked to a rebound in the US dollar and rising geopolitical tensions.
“The dollar index rebounded in a highly volatile session and settled higher. The rebound is largely driven by rising geopolitical tensions in the Middle East, especially around the Strait of Hormuz.

The US efforts to reopen the route have increased tensions, and there are fresh warnings of possible Iranian missile and drone strikes. This has pushed investors towards safe-haven assets like the US dollar,” he said.

He added that stronger US economic data has also supported the greenback. “Upbeat US factory orders data has further strengthened the dollar index, which is adding pressure on emerging market currencies, including the rupee,” Jain said.

Crude oil prices and FPI outflows add to pressure

Jain said domestic factors are also playing a key role in the rupee’s decline.

“Higher crude oil prices are significantly increasing India’s import bill. Since India is a major oil importer, any rise in crude prices directly weakens the rupee. At the same time, foreign portfolio investors are pulling out funds from domestic equity markets, which is adding to the pressure,” he explained.

He also pointed to falling forex reserves as a concern. “A decline in foreign exchange reserves is another factor that is weighing on the rupee,” he said.

Given these factors, Jain expects continued volatility. “We expect the rupee to remain volatile this week amid fluctuations in the dollar index, volatility in crude oil prices, and ongoing geopolitical tensions. The USD-INR pair could trade in the range of 93.85 to 96.40,” he noted.

Technical indicators suggest overbought levels

From a technical perspective, the USD-INR May futures contract remains firm. It settled at 95.3450 on the National Stock Exchange in the previous session, gaining 0.25 per cent.

The pair is trading above its key moving average support level of 94.52. Momentum indicators are showing strength. The Relative Strength Index (RSI) is above 70, indicating overbought conditions. The MACD indicator has also given a positive crossover on daily charts.

Immediate support is seen in the 95.08 to 94.70 zone, while resistance is placed between 95.80 and 96.10.
“The pair is sustaining above the 95 level and is in an overbought zone. We suggest booking profits in long positions on every rise,” Jain said.

Outlook remains weak amid global uncertainty

The near-term outlook for the rupee remains under pressure. External factors continue to dominate the trend. Movement in crude oil prices, US bond yields, and geopolitical developments will be key triggers for the currency.