The Indian rupee fell to a new record low against the US dollar on Tuesday, with USD/INR near 95.67. Renewed US-Iran tensions raised concerns about a prolonged closure of the Strait of Hormuz, which carries almost 20% of global energy supply.
Higher oil risk tends to support crude prices and can weigh on import-reliant economies such as India. WTI was trading flat, slightly below $96.00.
Rupee Weakness Driven By Oil Risk
US President Donald Trump said Iran’s counterproposal was a “stupid proposal” and said “Ceasefire is on life support”. CNN reported Trump had become more frustrated with the talks, with aides saying he is considering a resumption of major combat operations.
Foreign Institutional Investors remained net sellers in five of six May trading days. They sold holdings worth Rs. 19,509.91 crore.
India and US April CPI releases were in focus, with India’s due at 04:00 PM IST (10:30 GMT) and forecast at 3.8% YoY versus 3.4% in March. US headline inflation at 12:30 GMT was forecast at 3.7% versus 3.3%.
Safe-haven demand lifted the dollar, with DXY up 0.25% to about 98.15. Trump’s China visit from May 13-15 includes a planned meeting with Xi Jinping on the Middle East, Taiwan, AI, and rare-earths.
Technical Levels And Market Positioning
USD/INR traded near 95.70, above the 20-day EMA at 94.4221, with RSI near 64. The next level cited was 96.00, with support at 94.42 then 94.00.
The Rupee hitting a new low of 95.67 against the dollar is a clear signal of distress, driven by the threat to oil supplies through the Strait of Hormuz. We are seeing foreign investors react strongly, pulling over Rs. 19,500 crore from Indian equities so far in May. This pace of selling is the most aggressive we have witnessed since the global risk-off period in late 2025.
With Brent crude now holding stubbornly above $98 a barrel, the pressure on India’s import bill is immense. The cost of oil imports already jumped by over 15% in the last reported quarter compared to the previous year. This fundamental weakness for the Rupee is unlikely to disappear as long as Middle East tensions remain high.
We should expect market volatility to increase significantly in the coming weeks. One-month implied volatility for USD/INR has already surged past 8.5%, its highest level this year, indicating traders are bracing for large price movements. Buying call options on the USD/INR pair seems like a prudent strategy to profit from further Rupee weakness while capping downside risk.
This situation is reminiscent of the market reaction in 2022 after the conflict in Ukraine began, which also caused a major energy price shock. Back then, the Rupee depreciated nearly 7% over the following six months. History suggests that such geopolitical energy crises have a prolonged negative impact on the currency.
This week, the Indian and US inflation data will be critical triggers for the market. A US CPI print coming in higher than the expected 3.7% could accelerate the dollar’s rally by reinforcing the case for a more aggressive Federal Reserve. The Trump-Xi meeting on May 13-15 adds another layer of uncertainty, especially concerning discussions on Taiwan and rare-earth elements.
The technical picture supports a continued move upwards towards the 96.00 level, as the pair is in uncharted territory. Any temporary dips towards the 20-day moving average around 94.42 should be viewed as buying opportunities. We should consider using these levels to enter long futures positions or sell put spreads to capitalize on the bullish momentum.
