Indian Rupee remains weak due to sudden FCNR (B) closure, higher oil prices | FXStreet

The Indian Rupee (INR) trades with caution against the US Dollar (USD) on Tuesday. The USD/INR is close to its fresh three-week high of 95.85 despite potential Reserve Bank of India (RBI) intervention.

According to a Reuters report, the RBI likely intervened in the ‌foreign exchange market for an eighth consecutive ​session on Tuesday, ​four traders told Reuters, as ⁠elevated oil prices ​kept up pressure on ​the South Asian currency. Traders also said that state-run banks were spotted offering ​dollars, ⁠most likely on behalf of ​the RBI.

Markets see downside risks to INR

Financial markets believe that the early closure of the zero-swap facility for foreign currency non-resident (bank), or FCNR (B), deposits by a month, and higher oil prices will remain major headwinds for the Indian Rupee.

Strategists at OCBC note that the Indian Rupee “softened to a two-week low, with USD/INR closing around 95.60, as higher oil prices and the early closure of RBI’s FCNR(B) swap window weighed on sentiment.” They highlight that “the FCNR(B) window will now close on 31 Aug, one month earlier than planned, after the broader FX-inflow measures drew nearly USD57bn, including more than USD52bn via non-resident deposits.”

There is another school of thought that believes the early FCNR closure signifies that the RBI has raised sufficient foreign-currency inflows and now has greater room to support the rupee without continuing to incentivise additional dollar mobilisation, Business Standard reported.

OCBC views “importer USD demand and oil” to remain the key drags, though potential RBI-linked USD sell-flows and a broadly softer USD should help limit disorderly moves in the currency.

Oil prices rally as US-Iran ceasefire expires

In the early session on Tuesday, the MCX Crude Oil contract expiring on August 19 trades 1.1% higher to near Rs. 8,150, the highest level seen in two weeks.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

Energy prices have rallied further as United States (US) President Donald Trump said on Monday that he is not interested in renewing the expiring agreement with Iran, according to a Bloomberg report. This has prompted fears that Iran and the US could restart military attacks against each other, a scenario that could escalate concerns regarding a prolonged energy supply disruption. Trump added that the US still has leverage over Iran, citing the US naval blockade on Iranian seaports.

US FOMC minutes awaited

Financial markets keenly await the release of the Federal Open Market Committee (FOMC) minutes for the July policy meeting on Wednesday to get fresh cues regarding US inflation and the economic outlook.

Hints regarding the US interest rate outlook are unlikely as Fed Chairman Kevin Warsh remained committed to “no forward guidance” on policy rates.

According to the CME FedWatch tool, traders have scaled back the possibility of a Fed interest rate hike at the September meeting.

USD/INR Technical Analysis

USD/INR trades at around 95.68, holding above the 100-day simple moving average (SMA) at 95.0046, keeping the near-term bias moderately bullish as price consolidates near recent highs.

The Relative Strength Index (14) at 52.8 sits just above neutral, hinting at steady but not overstretched upside pressure.

On the downside, the 100-day SMA around 95.00 is a strong demand area. Looking up, the pair needs a decisive break above 96.00 to revisit the all-time high near 97.10.

(The technical analysis of this story was written with the help of an AI tool. Know more.)