The Indian Rupee stayed near record lows against the US Dollar on Wednesday. USD/INR held near 97.00 as higher oil prices weighed on the currency.
WTI crude traded near $101.80 at the time of reporting and was up over 50% since the start of the war in the Middle East. Oil-importing economies such as India often face pressure on their currencies when crude prices rise.
Oil Prices And Rupee Pressure
Oil prices remained elevated as talks between the US and Iran stayed unresolved, covering issues such as Tehran’s nuclear programme, compensation for war damage, and the US blockade of Iranian seaports. Iran’s Deputy Foreign Minister Kazem Gharibabadi said demands include lifting sanctions, releasing frozen funds, and ending the blockade.
US President Donald Trump said on Tuesday the US could attack Iran again within “two or three days”, possibly “Friday, Saturday, Sunday” or “early next week”. Iran said it was prepared for military action, and an Iranian army spokesperson said it would “open new fronts” if attacks resume.
Foreign Institutional Investors were net sellers on Tuesday, selling Rs. 2,457.49 crore after three days of net buying totalling Rs. 4,330.32 crore. US 10-year Treasury yields hit a yearly high of 4.69%, and CME FedWatch put the chance of at least one rate hike this year at 56.3%.
USD/INR traded around 96.85, above the 20-day EMA of 95.29, with a 14-day RSI of 72.96. The pair was described as having scope to move towards 98.00 if it holds above 97.00.
We see the Indian Rupee facing significant pressure from elevated oil prices and a strong US Dollar. This environment suggests positioning for continued Rupee weakness in the coming weeks. Derivative strategies should therefore favor a higher USD/INR exchange rate.
Strategy And Positioning Outlook
Geopolitical tensions in the Middle East are keeping oil prices stubbornly high, directly impacting our trade deficit. We just saw data showing India’s oil import bill for last month jumped by 45% compared to the same period last year. As long as crude remains above $100 a barrel, any significant recovery in the Rupee seems unlikely.
The selling from Foreign Institutional Investors (FIIs) is accelerating, which adds to the downward pressure on the Rupee. NSDL data confirms a net outflow of over Rs. 18,500 crore from Indian equities so far this month, a sharp reversal from the buying patterns we saw earlier. This capital flight makes it difficult for the Rupee to find a solid footing.
Higher US Treasury yields are making the dollar more attractive, pulling capital away from emerging markets like ours. The US 10-year yield hitting 4.69% is a stark contrast to the average of 4.2% we saw for much of 2025, signaling a much tighter global financial environment. With markets pricing in a greater than 50% chance of another Fed rate hike this year, this interest rate difference will continue to weigh on the Rupee.
Given this outlook, we believe buying USD/INR call options is a prudent strategy for the next few weeks. This approach allows us to capture potential upside towards the 98.00 level while clearly defining our maximum risk. We would look at strikes around 97.50 for options expiring in June or July to position for the next move higher.
