The rupee opened 4 paise higher at 95.17 against the US dollar on Monday, 10 August, supported by reduced expectations of a Federal Reserve rate hike next month after the US economy unexpectedly shed jobs last month.
The currency is also drawing support from the Reserve Bank of India‘s continued intervention in the foreign exchange market, which is helping cushion the impact of volatile oil prices and uncertainty surrounding the reopening of the Strait of Hormuz.
The rupee has remained in recovery mode over the past two weeks, aided by regular RBI intervention. Although crude oil prices remain volatile, Brent crude was trading around $84.50 a barrel on Monday, well below its recent high of $100, offering some relief to the currency.
The RBI’s presence was again evident on Friday when it intervened at the market open, signalling its intent to prevent oil-related pressures from triggering an unchecked decline in the rupee.
Oil outlook remains uncertain
Iran and Oman have indicated that they are close to reaching an arrangement on managing traffic through the Strait of Hormuz. However, Tehran has maintained that a full reopening of the key waterway would depend on the US changing its approach and addressing what Iran describes as violations of the June understanding.
The situation remains fragile, with a recent incident involving an Iranian missile targeting a UAE-linked tanker transiting the strait adding to concerns over the security of the crucial oil route. Brent crude is currently trading around $84.5 a barrel, with uncertainty over the reopening of the strait keeping prices volatile.
Oil remains a key risk for the rupee
For India, sustained higher crude prices could increase dollar demand and weigh on the rupee. According to market experts, every $10 increase in average crude oil prices can widen India’s current account deficit by around 30-40 basis points, increasing pressure on the currency.
RBI continues to strengthen reserves
Meanwhile, India’s foreign exchange reserves rose by $10.512 billion to $692.866 billion in the week ended 31 July, following a $6.118 billion increase in the previous week.
Currency market experts said the consecutive rise in reserves indicates continued RBI intervention and reserve accumulation, with the central bank likely buying dollars when the rupee strengthens. This could limit the currency’s near-term appreciation even as the US dollar remains relatively weak.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, said technically, the 95.00-95.10 zone should continue to act as a solid floor for the pair, and a gradual climb back towards the 96.00-96.20 region looks like the more realistic scenario over the coming sessions. Oil prices and the RBI’s own dollar buying are likely to stay the key drivers for the rupee this week, keeping the broader bias tilted towards weakness.
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