Indian Rupee remains higher despite oil strain, hawkish Fed bets

## Indian Rupee strengthens as Dollar inflows support sentiment The Indian Rupee started the week on a stronger footing against the US Dollar, with USD/INR falling toward 94.38. The move follows a significant increase in India's foreign exchange reserves after strong participation from non-resident investors in the Reserve Bank of India's special foreign deposit measures. ## RBI inflows reduce downside risks for INR MUFG analysts highlighted the Rupee's recent outperformance, supported by stronger-than-expected Dollar inflows from the RBI's FCNR(B) foreign exchange measures. Total inflows reportedly exceeded $130 billion as of August 31. Despite the near-term strength, analysts remain cautious about expecting a sustained Rupee rally. MUFG continues to expect USD/INR to move higher over time, although the RBI's stronger reserve position has reduced the risk of a sharp depreciation in the Indian currency. ## Higher oil prices remain a risk Elevated crude oil prices could limit further gains in the Rupee. Energy markets remain under pressure due to supply concerns surrounding the Strait of Hormuz amid continued tensions between the United States and Iran. On Monday, the September 21 MCX Crude Oil contract rose around 1.75% to approximately Rs. 8,730, approaching its three-month high near Rs. 8,791. Because India is a major oil importer, sustained increases in crude prices can increase demand for US Dollars and place pressure on the Rupee. ## US CPI data and Federal Reserve expectations in focus Investors are now turning their attention to the US Consumer Price Index report for August, scheduled for Friday. The inflation data could influence expectations for the Federal Reserve's next interest-rate decision. Fed Chairman Kevin Warsh has continued to warn about upside inflation risks, while New York Fed President John Williams and Governor Christopher Waller have described recent inflation developments as encouraging. Expectations for tighter monetary policy have also increased following stronger-than-expected US employment data. August Nonfarm Payrolls showed the economy added 162,000 jobs, well above the 56,000 forecast. July's figure was revised higher to 21,000 from an initially reported decline of 23,000. According to the CME FedWatch tool, the probability of a Federal Reserve rate hike at next week's meeting has risen to around 60%, compared with 50% before the employment report. ## USD/INR Technical Analysis USD/INR trades near 94.45 and retains a bearish short-term bias while remaining below the 20-day Exponential Moving Average around 95.17. The Relative Strength Index has moved below the 40 level, indicating that downside momentum remains dominant, although selling pressure may be becoming stretched. Key technical levels: - Immediate support: 94.15 - Current area: 94.45 - First major resistance: 95.15-95.17 A break below 94.15 could reinforce the bearish trend, while a recovery above the 20-day EMA would weaken the current bearish structure and increase the possibility of a corrective rebound.