USD/INR rose 0.3% to 95.63, closing at a new record high. The move was linked to strong domestic US dollar demand from importers.
Global oil prices stayed elevated due to conflict in the Middle East. Higher oil costs added pressure on the Indian rupee.
The Reserve Bank of India loosened curbs on speculative FX positions in late April. This change was followed by renewed pressure on INR.
Reports say the government is considering emergency steps to curb non-essential imports and reduce outflows. Elevated oil prices remain the key factor for INR going forward.
Given that USD/INR has breached a new record at 95.63, we should anticipate further weakness in the Indian currency. This is primarily driven by firm oil prices, with Brent crude futures for July delivery settling around $112.50, which directly impacts India’s import bill. The strong demand for dollars from domestic importers is unlikely to ease while energy costs remain this high.
The Reserve Bank of India’s recent move to loosen curbs on speculative FX positions signals a higher tolerance for a weaker rupee. We saw a similar, though less severe, bout of weakness in the second half of 2025, but the RBI’s intervention was more aggressive then. This time, the central bank appears more hands-off, suggesting we should not fight the upward trend in USD/INR.
For our derivative positions, buying USD call options or USD/INR futures is the most direct way to position for further INR depreciation. These instruments allow us to profit if the pair moves towards the psychological 96.00 mark or higher in the coming weeks. Using call options would also cap our potential losses to the premium paid, which is prudent given the market’s volatility.
The talk of potential government measures to curb non-essential imports introduces a key uncertainty. This threat of intervention means implied volatility on USD/INR options is likely to increase. Therefore, we could consider strategies that benefit from a large price move, regardless of direction, such as a long straddle.
This currency pressure is happening as India’s latest consumer price index (CPI) was reported at 6.8%, remaining stubbornly above the RBI’s target band. This persistent inflation limits the central bank’s policy options and makes a strong defense of the rupee less probable. This macroeconomic backdrop continues to support our view for a weaker INR.
