The Indian rupee opened stronger on Wednesday (August 5), touching 94.89 against the US dollar in early trade, as reported by The Hindu BusinessLine. The currency opened at 94.90 and touched 94.89, registering a gain of 39 paise from its previous close of 95.28. The move extends the currency's recovery from recent lows to almost 2% and represents a significant improvement from the 95-per-dollar mark achieved on Tuesday (August 4). The currency broke past the 95 level for the first time in recent sessions, with easing crude oil prices and hopes of progress in US-Iran talks supporting the currency's milestone achievement. The currency traded within a narrow band of 95.00-95.75, showing a mildly positive bias throughout the session. Importer hedging demand and FPI inflows supported the currency's stability, with caution ahead of the monetary policy announcement also influencing its movement. The rupee's recovery has been supported by positive foreign inflows, a softer dollar and lower crude oil prices, with the currency continuing to benefit from the RBI's recent measures including incentives for overseas dollar deposits and easier access to government securities for foreign investors.
Brent crude prices dropped 1.11% to $78.48 per barrel in futures trade, as reported by The Hindu BusinessLine, with the benchmark extending losses following progress in US-Iran talks and a pause in planned strikes. The recent strength in the rupee has been driven largely by the sharp decline in crude oil prices, with a fall in oil prices typically supporting the rupee as India, one of the world's largest crude importers, spends fewer dollars on energy purchases. Oil price moves have been one of the biggest drivers of the rupee and its near-term direction, with currency traders noting that for the rupee to sustain current levels, crude prices need to remain contained. Analysts have cautioned that markets may have been too optimistic about the possibility of a quick diplomatic settlement, leaving the risk of renewed tensions in the region.
Asian currencies traded mostly higher against the US dollar on Wednesday, with the South Korean won emerging as the top performer, gaining 0.34%, followed by the Philippine peso (+0.31%), Taiwan dollar (+0.21%), Malaysian ringgit (+0.17%), and Japanese yen (+0.13%). The Chinese renminbi also edged higher by 0.09%, while the Singapore dollar was largely unchanged with a marginal 0.02% gain. On the downside, the Indonesian rupiah slipped 0.17%, making it the weakest currency in the region, while the Thai baht remained almost flat, down 0.003%. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.80, down 0.06%, as reported by The Hindu BusinessLine. As per Moneycontrol, going forward, the rupee will continue to take direction from crude oil prices, the US Dollar Index, FII flows, and global geopolitical developments.
The domestic equity market showed strong recovery with the Sensex climbing 375.01 points to 78,803.96 in early trade, while the Nifty was up 62.7 points to 24,677.60, as reported by The Hindu BusinessLine. Foreign Institutional Investors purchased equities worth ₹2,446.47 crore on a net basis on Tuesday, according to exchange data. Local shares ended Tuesday's session lower after four consecutive sessions of gains, with investors booking profits at higher levels as Middle East worries persisted. The mixed market performance came amid heightened volatility from the rollout of a new method to determine closing prices, as reported by The Economic Times. On the domestic front, manufacturing activity showed signs of moderation, with India's Manufacturing PMI easing to 53.5 in July, the lowest reading in five years, according to The Hindu BusinessLine*.
Market participants are now watching the RBI's monetary policy decision due later on Wednesday (August 5), with traders expecting limited volatility from the policy outcome as expectations are largely centred around a status quo on interest rates, as reported by The Hindu BusinessLine. Forex traders said attention has now shifted to this week's RBI policy meeting, with the three-day meeting of the Reserve Bank of India's rate-setting panel started on Monday amid expectations of a status quo on the benchmark repo rate. According to a Reuters poll, 68 out of 72 economists expect the RBI to keep rates unchanged. The central bank's policy decision comes amid easing uncertainty around growth and inflation compared with the previous policy meeting, although risks from the West Asia situation and monsoon trends remain key factors for markets. In June, the Reserve Bank had kept its key policy rate unchanged at 5.25 per cent and adopted a cautious wait-and-watch stance as policymakers assessed the fallout of the West Asia conflict. The RBI policy decision is widely expected to keep the repo rate unchanged at 5.25 per cent. The real focus, however, will be on the RBI's tone, with any indication that the RBI is becoming more cautious about inflation could have a bigger impact on the rupee than the policy decision itself, as noted by CR Forex Advisors MD Amit Pabari.
The rupee's chart appears positive though there are geopolitical uncertainties, with the dollar near a support and a rally potentially weighing on the rupee, as reported by The Hindu BusinessLine. The path from the current level depends on the outcome of the RBI policy, which can be short lived, and how the dollar moves. The dollar index, while it has seen a sharp fall during the last week, is now trading near a key trendline support of 99.50 and rebounded from the level. If the dollar index loses strength and breaches the support at 99.50, it can open the door for a deeper fall to 98.80 or even to 98, in which case the rupee can cross over the immediate resistances at 95.20 and 95 and rise to 94. However, if the dollar index rebounds and lifts the dollar index to 100.50 and subsequently to 100.80, the rupee can decline to 96-96.20 against the dollar. Overall, the direction is unclear, but the rupee is likely to swing within 95 and 96 in the near-term as RBI might also try to maintain stability. Technically, the rupee is expected to trade in the 95.00–95.75 range over the near term, as noted by LKP Securities. Optimism around the Hormuz talks could help the rupee test its support zone of 94.80-95.00, with potential for a sharper move of 30 to 40 paise if the Hormuz deal actually goes through, according to CR Forex Advisors. Pabari further noted that optimism around the Hormuz talks could help the rupee test its support zone of 94.80-95.00, with potential for a sharper move of 30 to 40 paise on the stronger side, as long as this holds, the pair may gradually drift back toward 95.80-96.20 over coming sessions.
