Gulf Oil Flare-Up Pushes the Rupee Lower for a Third Straight Session Higher crude oil prices and fresh US-Iran hostilities dragged the Indian Rupee to its third straight day of losses against the US Dollar on Thursday, lifting the USD/INR pair to near 96.32. Climbing crude oil prices have once again put the Indian Rupee under pressure. The currency opened weaker against the US Dollar on Thursday, marking its third consecutive trading day in the red, and the USD/INR pair rose to near 96.32. The biggest trigger is the renewed fear of foreign money flowing out of the country as oil turns costlier. The continuing military confrontation between the United States and Iran in the Middle East has once again disrupted energy supply, and its impact is being felt directly on oil prices and on the currency of an import-dependent economy like India. Why crude has become the rupee's biggest headache India meets a large share of its energy needs through imported oil. Whenever crude gets more expensive, the import bill swells and demand for dollars picks up, which naturally weighs on the rupee. Currencies of economies that lean heavily on oil imports to power themselves tend to underperform in a high-oil-price environment, and the rupee is a textbook example of that pattern. In early domestic trade, the MCX Crude Oil contract expiring on July 20 climbed 0.7% to near Rs. 7,664, hovering close to its monthly high of Rs. 7,832. Crude is showing strength on international markets too. According to live data, the international crude benchmark is currently trading around $79.64 a barrel, marginally above its previous close of $79.60. Its technical indicators paint an interesting picture as well, with the RSI at 54 and the longer-term trend still leaning bullish. Fresh US strikes on Iran reignite supply worries Earlier in the day, the US Central Command (CENTCOM) announced that it had launched another wave of strikes against Iran. The stated aim of these strikes is to keep the Strait of Hormuz open, a critical chokepoint through which nearly one-fifth of the world's energy supply passes. That is precisely why any flare-up in this region shows up almost instantly in the oil market. The tension in the Middle East shows no sign of easing soon, as Iran has shut the door on US threats to strike Iranian infrastructure. Iran's top negotiator and parliamentary speaker Mohammed Bagher Ghalibaf said his country has "never welcomed war, nor do we now," adding that "we must always be prepared for battle and stand firm to protect our national security and interests." The remarks make it clear that the standoff between the two nations is unlikely to cool off for now. Dollar under strain as Fed rate-hike bets collapse The US Dollar did find some temporary footing in Thursday's Asian trade, but it took a heavy beating over the previous two sessions. The US Dollar Index (DXY), which measures the greenback against six major currencies, was marginally higher at around 100.52 at press time, sitting very close to the nearly four-week low of 100.35 it posted on Wednesday. According to the CME FedWatch tool, the odds of the US Federal Reserve delivering an interest rate hike at its meeting later this month have dropped sharply to just 10.2%, down from 31% a week ago. Behind this shift is the cooling of US inflation, which has softened at both the retail and wholesale levels. June's Consumer Price Index (CPI) fell 0.4% on the month, the largest one-month decline since April 2020. That dragged the annual rate down to 3.5% from May's 4.2% and snapped a three-month acceleration streak. Core prices went nowhere on the month and eased to 2.6% year-on-year, both coming in under consensus. Foreign investors keep pulling money out Foreign Institutional Investors (FIIs) turned net sellers on Wednesday, extending their selling streak to a third straight trading day. On Wednesday, overseas investors pared their holdings worth Rs. 735.83 crore. The confidence of foreign investors appears to be weakening because of elevated crude oil prices, and that same trend is piling additional pressure on the rupee. The technical picture for USD/INR On the downside, immediate support for the pair is seen at the 20-period EMA at 95.48, followed by the important 95.00 level. On the upside, the pair could try to make its way back towards its all-time high around 97.10. In other words, if the oil pressure and foreign selling continue at this pace, the road ahead for the rupee does not look easy. What actually drives the Indian Rupee The Indian Rupee is one of the most sensitive currencies to external factors. The price of crude oil, on which the country is highly dependent through imports, the value of the US Dollar, since most trade is conducted in USD, and the level of foreign investment all shape the direction of the currency. On top of that, direct intervention by the Reserve Bank of India (RBI) in the FX market to keep the exchange rate stable, along with the interest rates set by the RBI, are further major influences on the rupee. The RBI actively steps into the forex market to maintain a stable exchange rate and to help facilitate trade. In addition, the central bank tries to keep the inflation rate near its 4% target by adjusting interest rates. Higher interest rates usually strengthen the rupee. This is because of the role of the 'carry trade', in which investors borrow in countries with lower interest rates and place that money in countries offering relatively higher interest rates to profit from the difference. The macroeconomic factors that influence the value of the rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can attract more overseas investment, pushing up demand for the rupee. A less negative balance of trade will eventually lead to a stronger rupee. Higher interest rates, especially real rates (interest rates minus inflation), are also positive for the rupee. A risk-on environment can bring greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the currency. On the other hand, higher inflation, particularly when it runs hotter than India's peers, is generally negative for the currency because it reflects devaluation through oversupply. Inflation also raises the cost of exports, leading to more rupees being sold to buy foreign imports, which is rupee-negative. That said, higher inflation usually prompts the RBI to raise interest rates, which can lend some support to the rupee thanks to increased demand from international investors. The opposite effect holds true when inflation is lower. What this means for you • Across India: A weaker rupee can make imported oil, electronics and foreign goods costlier, which may push up everyday household spending. • For investors: Continued foreign selling and high oil prices can weigh on the stock market, so keeping an eye on volatility is wise. • For travellers and students: A softer rupee can raise the cost of overseas travel and studying abroad. Questions & Answers 1. Where did the rupee land on Thursday? The USD/INR pair rose to near 96.32, marking the rupee's third straight trading day of losses. 2. What is the main reason behind the rupee's fall? Elevated crude oil prices and US-Iran tensions have revived fears of foreign outflows, which is the biggest pressure on the rupee. 3. Where did MCX crude oil trade? The contract expiring on July 20 rose 0.7% to near Rs. 7,664, close to its monthly high of Rs. 7,832. 4. What are the odds of a Fed rate hike now? According to the CME FedWatch tool, the odds have dropped to 10.2%, down from 31% a week ago. 5. How much did foreign investors sell? On Wednesday, Foreign Institutional Investors pared holdings worth Rs. 735.83 crore, extending their selling to a third straight day. 6. What are the key technical levels for USD/INR? Support is seen at the 20-period EMA of 95.48 and then 95.00, while the upside targets the all-time high around 97.10. https://trendkia.com/en/market/khari-men-tela-ki-aga-ke-bicha-rupee-lagatara-tisare-dina-phisala-dollar-ke-mukabale-nai-kamajori-8095 TrendKia — Har trend, sabse pehle.