The Indian rupee appreciated by 29 paise to open at a three-week high of 95.39 against the US dollar on Friday, 31 July, supported by the US dollar’s sharpest three-month decline, easing crude oil prices, and expectations of continued support from the Reserve Bank of India (RBI).
The domestic currency has gained 0.9% so far this week, putting it on track for its best weekly performance in four months. According to a Reuters report, the rally has been largely driven by persistent RBI intervention. The central bank reportedly stepped in aggressively to sell dollars last Friday and has continued to support the rupee through regular market intervention.
Bankers told Reuters that the RBI’s repeated intervention signals its intent to prevent any sharp depreciation of the rupee from current levels. The report added that the Indian currency has outperformed other oil-sensitive Asian currencies, including the Indonesian rupiah and the Philippine peso, primarily due to the central bank’s sustained presence in the foreign exchange market.
Meanwhile, crude oil prices remained volatile amid renewed geopolitical tensions between the United States and Iran. Oil prices extended their losses during Asian trading as investors evaluated plans for a Saudi Arabia-led maritime coalition to enhance security cooperation and protect shipping routes in the Red Sea.
According to market experts, the US dollar came under pressure after a weaker-than-expected set of economic data offset support from the Federal Reserve’s hawkish policy stance. While the Fed kept interest rates unchanged, US second-quarter GDP grew 1.5%, below market expectations of 2.1%, while core PCE inflation, the Fed’s preferred inflation gauge, rose 0.1% in June, missing forecasts of 0.2%. The softer growth and inflation data triggered a broad-based decline in the dollar.
Adding to the pressure, the Japanese yen surged nearly 3% amid speculation that the Bank of Japan intervened in the currency market after the yen hit multi-decade lows, pushing the US Dollar Index sharply lower.
Experts noted that a weaker dollar is generally supportive for emerging market currencies, including the rupee. However, Brent crude hovering near $90 a barrel continues to limit the rupee’s gains. They said elevated oil prices, driven by lingering concerns over shipping disruptions in the Strait of Hormuz, keep India’s import bill high and sustain demand for dollars from oil importers, capping any sharp appreciation in the domestic currency.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, the 95.50–95.60 zone should provide near-term support if the dollar’s weakness persists. As long as this support holds, we continue to expect USD/INR to move towards the 96.80–97.00 zone, particularly if elevated crude oil prices and ongoing geopolitical tensions keep markets in a risk-off mode.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
About The Author
