USD Strength May Drive Indian Rupee to 96 Against US Dollar Amid Crude Oil Price Hike and Global Economic Uncertainty

Indian Rupee Declines Amid Escalating Military Tensions and Rising Brent Crude Prices

The Indian rupee continued its downward trend on Tuesday, 5 May, falling by 20 paise to 95.43 against the US dollar. Market sentiment remained weak due to escalating military tensions between the US and Iran in the Gulf region, prompting investors to turn to the US dollar as their preferred safe-haven asset.

The rupee's decline was also exacerbated by rising Brent crude prices, which approached $113 per barrel. This added to the strain on oil-importing countries like India, which imports nearly 88% of its crude oil requirements. In the interbank foreign exchange market, the rupee started at 95.30 and fell to 95.43 in early trading, down 20 paise from its previous close.

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According to UBS Research, the current account deficit is expected to widen from 1.1% of GDP in FY26 to 2.5% in FY27, reflecting elevated oil prices and weaker exports to the GCC, which accounts for roughly 15% of India's goods exports. This has raised concerns of a widening current account deficit, alongside near-record foreign portfolio investor (FPI) outflows of about $18.7 billion during March-April amid growth worries.

The Reserve Bank of India's (RBI) net short forward positions have reduced the country's usable foreign exchange reserves to around $600 billion, down from $703 billion as of 17 April 2026. UBS estimates that boosting capital inflows should be a key policy priority to address the rupee's underlying challenge in the balance of payments.

Sunny Agrawal, Head of Fundamental Research at SBI Securities, notes that sustained elevated crude oil prices could significantly widen India's import bill and current account deficit, further pressuring the rupee. He warns that prolonged currency weakness could trigger a cycle of FII outflows, exacerbating the decline.

India's external vulnerability remains closely tied to crude oil prices, given that it imports nearly 88% of its requirements, with about half sourced from the Middle East. UBS Research has revised its FY27-end USD/INR forecast to 96 from 94 earlier, citing continued pressure on the rupee.

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Mohit Gulati, CIO and Managing Partner at ITI Growth Opportunities Fund, echoes similar concerns, stating that India's external position has "quietly widened," with a thinner current account, softer remittances, and uneven FII flows acting as simultaneous headwinds. He adds that while the RBI can manage volatility, sustained rupee stability will depend on stronger capital inflows driven by earnings recovery and geopolitical stability.