The Indian rupee is poised to open weaker on Wednesday, expected to trade in the 95.75 to 95.80 range, compared with 95.68 on Tuesday, as reported by The Economic Times. The currency faces pressure from climbing oil prices and increasing U.S. Treasury yields, with Brent crude nearing $92 per barrel amid continued uncertainty over the Strait of Hormuz. U.S. President Donald Trump said on Tuesday that no talks were taking place with Iran and insisted the strait was open, contradicting Iran's assertion that the critical waterway remained closed to shipping. The 30-year Treasury yield has climbed to its highest level since 2007, spurring inflation concerns and pushing U.S. Treasury yields higher. As per The Economic Times, the rupee is facing pressure from multiple fronts now, with a currency trader at a private-sector bank noting that while the Reserve Bank of India is absorbing the pressure, the underlying demand for dollars is 'very high'. The currency is likely to remain biased lower, with traders watching whether the RBI steps up intervention near the 95.80-96.00 area.
The Reserve Bank of India has intensified its foreign exchange market intervention to every trading session since the previous Monday, as confirmed by multiple traders to The Hindu BusinessLine. The central bank's defence of the rupee at 95.45 against the dollar has been reinforced by heavy market presence, with state-run banks consistently offering dollars whenever the currency comes under pressure. According to The Hindu BusinessLine, the dollar sales occurred at multiple price levels, combining brief spurts of aggressive dollar selling with large offers, seemingly aimed at anchoring the rupee above certain levels. The persistent central bank intervention has revived memories of when the RBI was widely seen having a heavy-handed presence in the foreign-exchange market during the tenure of former RBI Governor Shaktikanta Das through December 2024. As per The Economic Times, the RBI has been selling dollars daily in recent sessions to support the rupee, helping ease pressure on the currency and keeping the rupee's decline measured while capping volatility, allowing the currency to adjust to renewed pressure from higher oil prices in an orderly manner.
The Indian rupee closed at 95.42 on Friday, within striking distance of the 95.45 level that the RBI was defending last week. According to The Economic Times, the currency has come off the lows nearing 97 to a dollar, but still remains on a depreciating slope against the US currency over the past fiscal year and the present. The rupee had strengthened to 94.23 in June from a record low of 96.96 in late May after the RBI announced the special scheme to attract foreign inflows. However, the currency has failed to appreciate meaningfully despite $57 billion of inflows under the special FCNR deposit window over the past one-and-a-half months, leaving oil prices and RBI intervention as the bigger near-term drivers. The 14-day realised volatility has collapsed to around 2% from more than 4% at the start of August, a particularly striking development given that Brent crude oil prices remain elevated near $92 per barrel.
Brent crude futures were up for the fourth straight day amid continued uncertainty over the Strait of Hormuz, as reported by The Economic Times. The oil price surge is spurring inflation concerns and pushing U.S. Treasury yields higher, with the rise in crude prices adding pressure on the rupee. India is particularly vulnerable to such supply disruptions as it imports about 90% of its oil. Market participants expect the pace of inflows to pick up over the remaining two weeks, which could provide some support to the rupee. For India, the world's third-largest importer of the commodity, higher crude oil prices are a key economic risk. Despite volatile crude oil prices, the rupee has demonstrated remarkably muted price action since last week, with the currency barely budging for several hours despite turbulent oil prices and elevated dollar demand.
The RBI's move to close its FCNR(B) deposit window on August 31, a month earlier than planned, has soured near-term sentiment for the rupee, as reported by The Economic Times. As per The Economic Times, market participants expect the pace of inflows to pick up over the remaining two weeks, which could provide some support to the rupee. Choudhary expects the USD-INR spot price to trade in a range of 95.20 to 95.70, with any intervention by the RBI also supporting the rupee at lower levels. Forming the backdrop to the central bank's stepped up FX market presence are chunky dollar inflows drawn by its measures to bolster India's balance of payments. Those steps have attracted nearly $57 billion, contributing to India's foreign exchange reserves climbing above $700 billion for the first time since April. Mukesh Pandey, Founder & MD of Rupyaapaisa.com, believes the rupee's future will depend on several key parameters including India's import bill, especially crude oil, export competitiveness, foreign direct investment, inflation, and interest rate differentials. As per The Economic Times, Tanay Dalal from Axis Bank expects continued nimble management, stating that "the rupee will likely move in a 94.50-96.00 range through the end of September," with the current market setup feeling like a throwback to 2024.
