Rupee Slips To Record Low Of 96.05 Per US Dollar - Check 5 Key Triggers Behind This Decline
The rupee fell to a lifetime low on Friday, May 15, as crude oil prices were hovering around $110 per barrel. Check the key triggers behind why rupee remains defensive and on high-risk.
- Republic Business
- 3 min read
Rupee Vs USD: The rupee fell to an all-time low on Friday, May 15, as crude oil prices were hovering around $110 per barrel, posing a fresh set of challenges for India's external sector, which have started to reflect in economic indicators.
The rupee fell 0.3% to 96.05 per US dollar, eclipsing its previous all-time low of 95.9575 in the previous session.
According to a Union Bank of India report,"The rupee remains exposed as long as oil stays elevated. Since the Iran war broke out in late February, the rupee has declined by more than 4% and is currently trading above the 95 mark."
“In the near term, INR strength would require a clear decline in crude prices, stronger FII inflows, or a broader dollar pullback,” it noted.
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Is Rupee Battling The Perfect Storm?
The rupee last week faced extreme volatility, characterised by a “V-shaped” movement largely influenced by sharp fluctuations in “global crude oil prices, stronger-than-expected US macroeconomic data, sustained geopolitical tensions, and continued strength in the US Dollar Index (DXY)”.
A key trigger for global FX markets was the stronger US Non-Farm Payrolls (NFP) data, which reinforced expectations that the US Federal Reserve may keep interest rates higher for longer.
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“The robust labour market data pushed US Treasury yields and the Dollar Index (DXY) higher, leading to broad-based weakness across emerging market currencies, including the INR,” as per the Mumbai-headquartered bank.
This data, combined with Brent crude “surging toward $105.50/bbl. due to Middle Eastern tensions, has intensified capital outflows as investors pivot toward a strengthening DXY.”
On the other hand, the convergence of “strong US economic data and high energy costs continues to widen India's trade deficit, keeping the rupee on a defensive footing as it may test new psychological lows,” according to the public lender.
Coming to ongoing external headwinds, India’s foreign exchange reserves tracked stable and continue shying away from record highs of $728.49 billion (as of 27th Feb’26) to $690.69 billion (as on 01st May’26) covering ~11 months of imports, driven mainly by a $5.02 billion fall in Gold and $2.80 billion dip in FCA; providing the central bank with substantial cushion to smooth volatility, according to several economists.
Rupee Outlook Amid Oil Shock
The outlook for the rupee remains defensive and high-risk, as the currency grapples with a "triple threat" of soaring energy costs, aggressive capital outflows, and a resurgent US Dollar. Brent crude prices hovering near elevated levels remain a key concern for the INR, given India’s high dependence on energy imports and the sensitivity of the current account deficit to oil price movements, as per the Union Bank of India.
Markets will closely track upcoming US inflation (CPI) data, Federal Reserve commentary, and US Treasury yield movements following the stronger-than-expected NFP data, which has reinforced expectations of prolonged higher US interest rates. A stronger DXY and sustained safe-haven demand could continue exerting pressure on emerging market currencies, including the rupee, noted Union Bank of India economists.
On the domestic front, “FPI flows, importer dollar demand, and forward market positioning will also remain crucial near-term drivers for USD/INR.”
“Any diplomatic breakthrough in ongoing geopolitical conflicts or correction in crude oil prices may provide temporary relief to the Rupee. However, if crude prices continue rising and global risk aversion intensifies, the INR could remain vulnerable to testing fresh record lows in the near term,” it noted.