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Below the Perspective on the Indian Rupee, US Dollar, Natural Gas and Crude Oil by Ms. Riya Singh - Research Analyst, Commodities and Currency, Emkay Global Financial Services

Indian Rupee

The Indian rupee staged a sharp rebound this week after the Reserve Bank of India (RBI) stepped up its intervention to counter what it perceived as speculative pressure on the currency. The RBI actively sold dollars in both onshore and offshore markets after the rupee neared the 89-per-dollar mark, a level viewed as a critical threshold. The central bank is determined to prevent a breach of the record low of 88.8050 and has sufficient reserves—around $700 billion—to defend the currency. The RBI’s aggressive action, including dollar sales in spot and forward markets, triggered a nearly 1% rally in the rupee—its biggest two-day gain in four months—bringing it to around 88.07 per dollar. The intervention followed weeks of subdued trading that saw the currency hovering near record lows amid heavy foreign outflows and tariff-driven headwinds. Governor Sanjay Malhotra described the recent weakness as a “correction,” noting that the rupee had remained unusually stable compared with peers despite global volatility. India’s fundamentals remain intact: inflation has dropped below 2%, growth is projected above 6.5%, and the current account deficit is modest at around 1% of GDP. Still, US tariffs of 50% on Indian exports and persistent equity outflows have weighed on sentiment. Market optimism improved after signs that India and the US are moving toward a trade resolution, while a softer dollar and firmer yuan added to the rupee’s support. The RBI is expected to continue intervening until speculative positions unwind completely. For now, the rupee may trade sideways amid upcoming holidays, but sustained foreign inflows and progress on trade talks could help it strengthen further in the coming weeks.

US Dollar
The US dollar extended losses for a fourth consecutive day, marking its steepest weekly drop in over two months amid dovish signals from Federal Reserve officials and renewed concerns about US regional banks. The Dollar Spot Index fell 0.5% over the week, while Treasury two-year yields dropped to a six-week low. Market participants have priced in roughly 53 basis points of rate cuts by year-end, up from 46 on Wednesday, reflecting growing expectations for monetary easing. Fed Governors Christopher Waller and Stephen Miran reinforced the view that further reductions—either in quarter-point increments or larger—are appropriate to support the labor market. The ongoing US government shutdown, now in its third week, has limited economic data releases, but the Fed appears undeterred in pursuing policy easing. At the same time, recent loan irregularities at regional banks, including Zions Bancorp and Western Alliance, have weighed on both equities and the dollar. Political risks in Japan and France, as well as a softer oil market, have also contributed to the greenback’s retreat. Short-term options show increased bearish sentiment, though positioning for a stronger dollar remains toward year-end. On the inflation front, tariff pass-through continues to influence price dynamics. Manufacturers have absorbed about 70% of the higher US tariffs, primarily passing costs to other businesses and wholesalers rather than end consumers. The October Producer Price Index (PPI) will provide critical insights into how much of the remaining tariff burden is being transferred through the supply chain ahead of the Fed’s December meeting. Companies are deploying cost-mitigation strategies, such as bonded warehouses and Free Trade Zones, to offset tariffs, particularly for imports from China and India. Overall, the dollar faces multiple headwinds, including a dovish Fed, banking-sector concerns, tariff uncertainties, and global trade tensions. Market volatility is likely to persist, with the greenback’s near-term direction sensitive to both policy guidance and the release of key economic data.

Natural Gas

US natural gas futures retreated to a near three-week low as comfortable storage levels and mild weather forecasts kept sentiment bearish. The latest government data showed inventories 4.3% above the five-year average, suggesting ample supply before the winter drawdown begins. Cooler conditions expected later in October have yet to spur meaningful heating demand, while LNG flows to Northwest Europe rose 13% above the 30-day average, helping offset reduced Norwegian pipeline deliveries. European gas inventories stood at 83% of capacity, below the five-year norm of 91% but sufficient for current needs. In the UK, physical gas inflows exceeded demand, keeping system conditions balanced amid a rise in LNG send-outs. European natural gas prices also slipped, with Dutch TTF futures easing toward €32/MWh as traders assessed US-led peace efforts in Ukraine and their potential impact on Russian energy flows. Despite optimism over talks, Russian gas still accounts for just over 10% of Europe’s imports versus 45% pre-war, and fresh attacks on Ukrainian gas infrastructure have raised the risk of increased regional demand this winter. Globally, the docking of a sanctioned Russian LNG cargo in China underscored shifting trade alignments. Overall, US gas remains under mild pressure, but any sharp cold spell or LNG disruption could quickly tighten fundamentals and lift prices as the heating season nears.

Crude Oil
China’s onshore crude inventories fell to 1.17 billion barrels this week from a record 1.2 billion barrels in mid-August, driven by draws in commercial stockpiles, while strategic reserves remained stable at 415 million barrels. Above-ground storage is now 57% full, reflecting a seasonal decline and ongoing stockpiling that supports global prices amid record oversupply. US sanctions on the Rizhao Shihua terminal have disrupted tanker routes, but no major draw was observed in the area. India’s refiners plan to reduce, not halt, purchases of Russian crude following US President Trump’s remarks, with inflows in October estimated at 1.7 million barrels/day, about 6% higher than September. Key ports like Sikka are receiving nearly half of these shipments, as refiners including Indian Oil, Reliance, and Mangalore Refinery continue sourcing cost-effective Russian barrels despite some EU and UK sanctions. Meanwhile, Canadian crude exports to China are on track for record volumes, with nearly 5 million barrels shipped from Vancouver in the first half of October, over 70% heading to Chinese ports including Ningbo, Zhoushan, and Zhanjiang, boosting Canadian heavy crude prices. In the US, commercial inventories rose 3.5 million barrels to 423.8 million barrels, while Cushing stocks fell to 22 million barrels, the lowest since July, as refinery runs dropped to the lowest seasonal level since 2021. Brent is trading near $60/bbl and WTI near $57/bbl, pressured by rising US-China trade tensions, the potential Russia-Ukraine truce, growing oversupply concerns, and elevated Iranian floating stocks above 31 million barrels, highlighting a delicate balance between supply resilience, geopolitical tensions, and fluctuating demand in the global crude market.

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