The Indian rupee opened 25 paise stronger at 95.14 against the US dollar on Monday, 3 August, supported by a sharp decline in crude oil prices and continued expectations of intervention by the Reserve Bank of India (RBI).
The domestic currency gained 1.2% last week, its strongest weekly performance in months, with traders attributing much of the rally to the RBI’s sustained dollar sales across multiple levels, according to a Reuters report.
Market participants told Reuters that the combination of persistent RBI intervention and softer crude oil prices has significantly improved sentiment toward the rupee. The focus has shifted from concerns that the currency could weaken beyond the 97-per-dollar mark to expectations that it has found a near-term floor around current levels.
Softer oil prices offer temporary relief
Experts added that lower crude oil prices have further supported the rupee. Brent crude fell more than 4% to around $84 a barrel after US President Donald Trump announced that peace talks with Iran would resume following the cancellation of a planned military strike. Lower oil prices typically reduce India’s import bill and ease demand for dollars.
Japan-US currency intervention supports Yen
According to market experts, Japan’s Finance Ministry confirmed on Friday that it carried out a coordinated yen-buying intervention with the United States to curb excessive volatility in the currency market. The ministry also signalled that it is prepared to intervene again if required. Market estimates suggest the Bank of Japan (BOJ) spent $52-59 billion selling the US dollar and buying the Japanese yen, helping the Japanese currency rebound sharply from around 162.80 to 158.30 against the US dollar. With support from Washington, the dollar-yen pair has since moved closer to the 157 level.
History shows coordinated action during market stress
Experts noted that this is not the first instance of coordinated currency intervention between the US and Japan. A similar joint action was seen under the 1985 Plaza Accord to address global trade imbalances, and again in 1998 during the Asian financial crisis to stabilise the yen. While the underlying reasons have differed, coordinated intervention has historically been used to counter disorderly currency movements.
Implications for the Rupee
According to analysts, the immediate impact on the Indian rupee has been supportive, as the US dollar index slipped towards 99.50, easing pressure on emerging-market currencies. However, they cautioned that if Japan and the US continue intervening, it could trigger an unwinding of the yen carry trade, potentially leading to higher volatility across global financial markets, rising US Treasury yields, weaker emerging-market currencies, and pressure on equities.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, technically, 95.20 to 95.40 is likely to act as a strong support zone for the rupee. From these levels, USD/INR could gradually drift back towards the 96.00 to 96.50 range over the coming days.
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