The Indian rupee closed at 95.2075 per dollar on Friday, gaining about 0.2% week-on-week despite ending little changed from the previous session at 95.22. As per The Economic Times, the currency showed modest improvement over the week as dollar sales by state-run banks, most likely on behalf of the Reserve Bank of India, kept the rupee on a tight leash. The currency's intra-day range shrank to a multi-month low during the session, reflecting the central bank's proactive defense of the rupee. Strong inflows under measures to strengthen India's balance of payments have bolstered the central bank's ammunition to defend the rupee, with India's largest lender, State Bank of India, having raised about $6 billion under a scheme to attract overseas FX deposits and expecting its final tally to stand at about $10 billion by the end of September.
Oil prices rose 0.3% to $82.7 on Friday on concerns surrounding the reopening of the Strait of Hormuz and potential Iranian bans and fines on vessels it deems hostile or in violation of proposed rules. As per The Economic Times, uncertainty over the Middle East conflict remains a key overhang on markets, spurring traders to avoid holding positions heading into the weekend. The rupee's recovery continues to be primarily driven by falling crude oil prices following progress in U.S.-Iran talks, with Brent crude futures trading at around $80 per barrel and hopes of a diplomatic resolution to the US-Iran war having cooled oil prices sharply. However, the latest price recovery adds pressure as Brent crude has fallen from a recent peak of around $102 per barrel to below $79 per barrel, reducing pressure on India's import bill as one of the world's largest crude importers spends fewer dollars on energy purchases.
The Reserve Bank of India's decision to hold rates unchanged at 5.25% for the third consecutive time with a neutral stance provided immediate support to the rupee, as per The Economic Times. The six-member Monetary Policy Committee, headed by Governor Sanjay Malhotra, unanimously voted to keep the repo rate unchanged and retained its "neutral" policy stance. However, the central bank's widely expected policy pause limited some of the currency's early gains. Dollar/rupee forward premiums declined during the session, with the one-year implied yield easing by 7 basis points to 2.79%. Market participants remain divided on future rate expectations, with Sonal Badhan from Bank of Baroda expecting at least one 25-basis point rate hike in December to prevent real interest rates from turning negative and protect the rupee. The RBI's decision to maintain rates while awaiting clearer evidence on whether volatile oil prices are fuelling broader inflationary pressures provided stability to the currency.
Investors are now keenly awaiting essential U.S. labor market statistics, especially the non-farm payrolls data from the last month, for insights on future economic trends, according to The Economic Times. U.S. job growth is expected to have picked up in July, offering reassurance that the labour market remained resilient and allowing the Federal Reserve to maintain its focus on inflation. "Our call remains one of USD weakness in the next couple of months as we expect the Fed to stay on hold this year," ING said in a note. Interest rate futures markets are pricing in about 30 basis points of rate increases over the remainder of 2026, per LSEG data. Any appreciation of the rupee beyond the 95-per-dollar mark is likely to trigger fresh demand for the US currency, according to market participants, making the upcoming U.S. data crucial for currency direction.
The Indian rupee was steady on Thursday, trading at 95.1550, little changed from the previous session, as cooling crude oil prices and sustained foreign exchange inflows boosted the currency's appeal for carry trades. As per Business Standard, the rupee has recovered significantly from its record low of 96.96 per dollar hit in May, with Brent crude oil prices holding below $80 per barrel and over $40 billion in recent inflows by the end of July. Carry trades involve borrowing low-yielding currencies to invest in other currencies offering higher yields, and the rupee's carry-to-volatility ratio has been rising supported by the RBI's measures to mitigate FX depreciation pressures, according to analysts at Goldman Sachs. BofA Global Research meanwhile says the rupee offers the best 'carry adjusted value' among emerging market currencies since it ranks relatively cheap on valuation metrics while offering a high yield.
