The Indian rupee is set for a quiet start at ₹95.65-95.70 range on Monday, supported by robust capital inflows and monitored oil prices. According to The Hindu BusinessLine, the currency settled at ₹95.6950 to the dollar on Friday, demonstrating continued strength from previous sessions. This represents a notable improvement from Wednesday's close of ₹95.73, with the currency opening at ₹95.57 and appreciating to ₹95.56 in the previous session. The rupee's strength was primarily driven by the US Treasury's unexpected announcement to double its buyback operations for longer-dated Treasury bonds from $2 billion to $4 billion per operation, starting September 9. Oil prices slipped on Monday as investors awaited an expected announcement from Washington about imposing more sanctions on Iran that may further disrupt energy supplies from the Middle East, providing additional relief to the local currency. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 98.64, lower by 0.01%, with the currency falling to its lowest level since late May after the Treasury announcement.
Domestic equity markets showed strong performance in early trade, with Sensex jumping 504.32 points to 77,416.16 and Nifty trading up 118.85 points to 24,198.55. According to The Hindu BusinessLine, this represents a significant turnaround from Wednesday's session where local shares ended lower for a seventh straight session. Foreign institutional investors purchased equities worth ₹407.99 crore on a net basis on Wednesday, indicating continued foreign investor confidence in Indian markets despite currency volatility. The BSE Sensex had dropped 325.78 points (0.42%) to close at 76,909.68, while the Nifty 50 shed 76.60 points (0.32%) to finish at 24,078.30 on Wednesday. Muted opening in local equities tracking weak cues from global markets on growing concerns that surging oil prices could keep inflationary pressures persistent and leave interest rates higher for longer were also keeping the rupee subdued. Positive cues from global equities are likely to keep local shares optimistic and support the rupee, as reported by The Hindu BusinessLine.
The Reserve Bank of India has been a consistent anchoring force for the rupee, with traders and analysts noting that RBI intervention has been instrumental in curbing volatility expectations. As reported by The Economic Times, the RBI has consistently intervened for the past nine trading sessions, arresting weakness in the rupee, as oil prices soared. Over the weekend, the central bank said it has garnered nearly $73 billion under measures rolled out in June to strengthen India's balance of payments, helping lift FX reserves just shy of a record high. According to Goldman Sachs analysts, "We expect the RBI to use inflows to reduce its FX forward book and/or rebuild FX reserves, rather than allow a material appreciation of the currency". V K Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, noted that "there is no room for a sharp depreciation since India has adequate forex reserves and the inflows under the FCNR (B) scheme have been much better than expected". However, he cautioned that "rupee has mildly depreciated against the dollar due to higher crude oil prices and strong US bond yields. So long as crude oil prices remain elevated, rupee will continue to be mildly weak". Finrex expects the RBI to remain active in the market on Thursday and could intervene at certain levels to limit the rupee's downside, with exporters likely to sell near ₹95.75 and importers likely to buy on dips.
Brent crude, the global oil benchmark, was trading near $94 per barrel, continuing to strain India's import expenses despite the rupee's strength. According to The Hindu BusinessLine, oil continues to trade above $90 with a nervous edge, keeping pressure on India's import bill. Amit Pabari from CR Forex Advisors noted that "oil and sentiment remain fragile. Dips are therefore likely to be shallow and short-lived rather than a genuine trend reversal". The immediate support for the rupee is near ₹95.30-95.50, with USD/INR expected to gradually move towards ₹96.20-96.50 if this level holds, as per Pabari's analysis. The rupee faced multiple headwinds including higher oil prices and a global bond rout, with investors fretting over inflation pressures and stretched fiscal balances as global long-tenor bond yields jumped across Japan to the US. US President Donald Trump has also threatened to impose sanctions on Iran's trading partners, adding to uncertainty over Middle East energy supplies. The dollar is also being weighed down by reduced expectations of further Federal Reserve tightening though the FED policymakers' inflation concerns increased at the July meeting.
Asian currencies and stocks were mostly rangebound, with investors awaiting results from chip major Nvidia later this week followed by a key speech from Federal Reserve Chair Kevin Warsh on Friday. According to Moneycontrol, a wavering dollar teetered near multi-month lows on Monday in a market unsettled by the U.S. Treasury's promise to buy back more long bonds, while traders awaited details of sanctions on Iran and policy speeches this week in the U.S. and Japan. There have been no major developments in the Middle East, apart from Iran warning against fresh "crippling" sanctions by the US, providing some stability to regional currency movements. Goldman Sachs has revised its three-, six- and 12-month rupee forecasts weaker to 96,97,97 from 94,95,96, respectively, after the RBI brought forward the closure of the discounted hedging facility for overseas deposits by a month. Finrex expects exporters to sell around ₹95.75, a level that the RBI appears to be protecting, with this being the final week for mobilisation of FCNR deposits, while importers are advised to buy on dips, as oil companies continue to demand dollars amid elevated crude prices.
