USDINR Sustains Rise As Oil Prices Pressure the Rupee

Summary:
• Global crude oil prices have been rising for the last two weeks, and USDINR could rise further as risk rises in the Middle East and Europe.

USDINR climbed up further on Thursday, gaining 0.1 percent in the intraday session to trade at 83.56. Rising crude oil prices have brought pressure the rupee’s way, and could drive the currency lower if it stays on its current trajectory. Oil prices have been rising steadily since June 4, with West Texas Intermediate (WTI) having gained 8 percent and Brent crude up by 11 percent since then.

India is the world’s third-largest importer of dollar-denominated crude oil, and the spike in the commodity’s prices could neutralize the forex inflows in the country’s capital markets following the conclusion of its elections. Oil prices are currently being driven by the geopolitical tension in the Middle East between Israel and Hezbollah. Also, Ukraine attacked another key Russian oil infrastructure on Tuesday, creating concerns over possible supply shortages.

Furthermore, the demand for oil is expected to rise during the summer, which could drive prices further up. The US will release its weekly crude oil inventories data later on Thursday, and that could shed light on the demand trajectory for the commodity, with its effects likely spilling over to the USDINR exchange rate.

Also, investors will likely react to the US Initial Jobless Claims data, which is also scheduled for release on Thursday. In addition, the US Building Permits data and Housing starts could inject some volatility. Down the line, however, the rupee could find tailwinds toward the end of June when dollar inflows come into India from the JP Morgan emerging market debt index come in.

Technical analysis

The momentum on USDINR signals that the buyers are currently in control, as shown by the RSI indicator. The pivot will likely be at 83.61, and the upside momentum is likely to encounter the first resistance at 83.66. A break above that level will likely build the momentum to test 83.70. Conversely, the sellers could take control if the pair moves below 83.61. In that case, the first support will likely be at 83.57, and a break below that mark will invalidate the upside narrative. In addition, the resulting momentum could push USDINR to test 83.52.