Indian Rupee falls further as US-Iran tit-for-tat strikes boost oil prices

The Indian Rupee (INR) extends its decline against the US Dollar (USD) on Wednesday after a sharp correction the previous day. The USD/INR pair jumps marginally above 95.00 as surging energy prices have battered the Indian currency significantly.

In the opening session, the MCX Crude Oil contract expiring on September 21 trades higher by over 2% to near Rs. 8,920.

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

Escalating US-Iran attacks boost oil prices

Rising tit-for-tat attacks between the US and Iran in the past few weeks have prompted fears of prolonged energy supply disruption again.

Earlier in the day, Iran's Islamic Revolutionary Guard Corps (IRGC) launched ballistic missile strikes targeting the Al Azraq air base in Jordan, which shelters US military personnel and aircraft, in response to US Central Command (CENTCOM) consistently bombing Iranian tankers in the Gulf of Oman, Al Jazeera reported.

Meanwhile, the data from Kpler shows that the number of commodity vessels sailing ​through the Strait of Hormuz ​totalled seven on September 7, compared with eight ⁠on the previous day, Reuters reported. This is a significant decline from an average of 130-140 ships transiting through Hormuz before the Middle East war started.

Falling INR prompts fears of RBI intervention

A significant decline in the Indian currency this week has prompted fears of the Reserve Bank of India’s (RBI) stealth intervention through spot and Non-Deliverable Forward (NDF) markets.

According to a Reuters report, while the Indian central bank was present in the market on Tuesday, traders said the intervention was not enough to prevent the Indian Rupee from weakening.

US Inflation will be key trigger this week

This week, the major trigger for the USD/INR pair will be the US Consumer Price Index (CPI) data for August, which will be released on Friday. The inflation data is expected to have a significant influence on the US interest rate outlook.

According to TD Securities, upcoming inflation data should be “subdued enough to keep the Fed on hold,” though they stress that “the PCE translation will be key.” The bank estimates that, if their forecast is realized, “core PCE would likely be a modest 0.18% m/m, with market-based an even more subdued 0.13%.” They argue that such an outcome “would be a welcome number for the more centrist members of the FOMC like Waller and Williams, and in our view, would be enough to keep the Fed on hold in September.”

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 95.07. The pair has recovered strongly to near the 20-day exponential moving average (EMA) at 95.1338, suggesting strong demand at lower levels.

The Relative Strength Index (14) recovers quickly into the 40.00-60.00 zone after staying below 40.00 for a few trading days, backing the view of strong buying interest at lower levels.

On the topside, initial resistance is located at the 20-day EMA around 95.13; a daily close above this level would be needed to ease immediate selling pressure and open the way for a more sustained rebound toward 95.50. Looking down, the June low at 94.15 will remain the key support area.