USD vs INR: Rupee falls to lifetime low against US dollar; Key reasons behind the sharp decline

USD vs INR: The rupee fell to a fresh record low on Thursday as persistent concerns over elevated energy prices and a hawkish signal from the US Federal Reserve weighed on investor sentiment.

The domestic currency slipped to 95.2325 against the US dollar, down 0.4 per cent during the day. It breached its previous all-time low of 95.21, which was recorded in late March.

Expert view: Why the rupee is under pressure

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Manoj Kumar Jain, Director and Head of Commodity and Currency Research at Prithvi Finmart, said the Indian rupee remains under pressure due to a combination of stronger crude oil prices, firmness in the dollar index, rising US bond yields, and continued geopolitical uncertainty.

He said the dollar index extended gains in a highly volatile global trading session and settled at 98.82 on Wednesday, up 0.36 per cent. At the same time, the USD-INR May 26 futures contract also closed higher at 95.01, rising 0.08 per cent on the National Stock Exchange.

According to Jain, the strength in the dollar came after the US Federal Reserve maintained interest rates at 3.75 per cent, signalling a cautious stance on rate cuts. The Bank of Canada also kept rates unchanged, which supported the broader strength in the US dollar.

He added that US 10-year Treasury yields also moved higher and crossed the 4.40 per cent mark. Higher bond yields usually make dollar assets more attractive for global investors, leading to capital flows into the US and putting pressure on emerging market currencies like the rupee.

Crude oil surge adds fresh pressure

Jain said one of the biggest concerns for the rupee is the sharp rise in crude oil prices caused by supply disruptions and geopolitical tensions.

He pointed to the significant supply shock from the Strait of Hormuz and the ongoing US-Iran conflict, which have pushed crude oil prices to record high levels once again.

Since India is heavily dependent on imported crude oil, higher prices directly increase the country’s import bill. This widens the trade deficit, raises inflation risks, and creates additional pressure on the rupee.

“Higher crude oil prices significantly increased Indian import bills and are pressurising the rupee,” Jain said.

He expects the dollar index to remain highly volatile this week due to uncertainty around the US-Iran peace deal, fluctuations in crude oil prices, and instability in global financial markets. He sees the dollar index trading in the range of 97.40 to 99.80 this week.

Rupee may remain volatile this week

On the domestic side, Jain said volatility in Indian equity markets and weak foreign capital flows are also adding pressure on the local currency.

He expects the rupee to remain volatile this week as investors closely track global crude prices, US bond yields, the dollar index, and geopolitical developments.

According to him, the USD-INR pair could trade in the range of 93.85 to 95.80 in the near term.

Technical view on USD-INR

From a technical perspective, Jain said the USD-INR May 26 futures contract has extended gains and remains in a strong uptrend.

On the daily chart, the pair is trading above its key moving average trend-line support level of 93.89, which indicates positive momentum. The Relative Strength Index (RSI) is above 60, suggesting strong buying interest.

At the same time, the MACD indicator is showing a positive crossover on the daily chart, which is generally seen as a bullish signal for further upside.

He also noted that the pair has crossed the important psychological level of 95.00, strengthening the positive technical setup.
Immediate support for the pair is placed at 94.74 to 94.40, while resistance is seen in the range of 95.25 to 95.55.

However, Jain advised traders to book full profits in long USD-INR positions ahead of the long weekend, as the pair is currently trading in the overbought zone and could see some profit booking at higher levels.