The Indian rupee emerged as the best-performing currency in Asia, gaining 33 paise to settle at 95.41 per dollar against the previous close of 95.74 per dollar, as reported by The Economic Times. The currency traded in the range of 95.40 and 95.75 during the session, demonstrating significant recovery from Monday's marginal gain of 1 paisa at 95.70. The rupee's recovery was driven by aggressive central bank intervention through dollar sales combined with a sharp fall in crude oil prices, with Brent crude falling more than 3% to $89.2 per barrel amid signs of progress in US-Iran peace talks, with Pakistan indicating that a deal was close. Forex traders said the overall weakness in the US dollar on declining odds of a rate hike may support the rupee at lower levels, providing additional support to the currency's strength. The USD/INR pair remained largely range-bound around 95.50–96.00, with oil prices and Reserve Bank of India's intervention likely to remain the key near-term drivers, according to market participants. The rupee is expected to trade between 95.25 and 95.75 on Thursday, with domestic markets closed Wednesday for a religious holiday.
The Reserve Bank of India likely intervened in the foreign exchange market on Tuesday to protect the rupee from pressure caused by elevated oil prices and sustained corporate demand for dollars, according to Reuters reports citing four traders. State-run banks were selling dollars on behalf of the RBI at weaker levels during the first half of trading, with the central bank maintaining its intervention stance throughout the session, as reported by The Economic Times. Persistent interventions by the central bank have curbed the rupee's volatility over the last two weeks, making it among Asia's least volatile units despite ructions in global cues, as reported by The Economic Times. The central bank's sustained intervention has driven the rupee's 2-week realised volatility to under 2%, among the lowest in Asian peers, as traders noted that the central bank wants to deter any appetite to bet against the rupee. Forex traders told news agency PTI that elevated crude prices and importer demand for dollars were weighing on the currency, while RBI intervention through state-run banks helped prevent a sharper decline. The currency's 2-week realised volatility has declined below 2% while the 1-month implied volatility, a gauge of future expectations, has eased to about 4%, below its year-to-date average of 5.2%.
Domestic government bond yields also eased during the session, with the yield on the benchmark 10-year government bond slipping 2 basis points to 6.85%, according to The Economic Times. The likelihood of future talks between Washington and Tehran also cooled yields on the benchmark 10-year bond by two basis points, as reported by The Economic Times. Bond market participants said bond yields reversed losses during the latter half of the day, tracking a fall in crude oil prices. "The Indian rupee led Asian currency gains as the combination of heavy central bank intervention and tumbling crude oil prices breathed fresh life into the domestic unit," said Dilip Parmar, senior research analyst at HDFC Securities. "A sharp retreat in global oil prices successfully revived broader market risk appetite, leaving the greenback struggling to sustain its early momentum as the Dollar Index (DXY) slipped beneath the 99 mark," he added. The trajectory of US yields and crude are the major cues for the market right now, as noted by a dealer at a primary dealership.
India's benchmark NSE Nifty 50 advanced 115.50 points to settle at 24,334.55, while the BSE Sensex climbed 286.98 points to settle at 77,656.09 on Tuesday, according to Business Standard. Local shares reversed an early slide to end modestly higher on Tuesday as U.S. Treasury yields eased from recent highs following reports that the Treasury could use its near $1 trillion General Account to help fund its recently announced bond buyback program. The domestic market rally provided significant support to the rupee's strength, with positive sentiment from equity markets helping to offset some of the pressure from geopolitical tensions. The 10-year bond yield dipped to 6.94%, providing additional support to the currency. The rupee is expected to trade steadily between 95.70-95.75, supported by improved portfolio inflows despite ongoing pressures, with sustained hedging demand from local corporates and intermittent maturities of derivative contracts among the ongoing challenges.
The rupee has depreciated by 0.6% so far this fiscal year, while it has weakened by 5.80% in the current calendar year so far, as reported by The Economic Times. The yield on the benchmark has fallen by 19 basis points in the current financial year, while it has hardened by 26 basis points in the current calendar year so far. Besides keeping an eye on developments in the Middle East, investors are awaiting remarks from Federal Reserve Chair Kevin Warsh on Friday for cues on the outlook for U.S. interest rates, as reported by The Economic Times. "We think the Fed is on an extended hold, but policymakers have been clear that progress on inflation is needed, so the risk of rate hikes remains," analysts at ANZ said in a note. India's forex reserves jumped $9.905 billion to $716.907 billion during the week ended August 14, as reported by The Hindu. The Reserve Bank of India's special USD-INR forex swap facility for FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECB) has mobilised foreign exchange inflows of $73 billion as of August 21, 2026, reflecting strong backing from Non-Resident Indians (NRIs).
