The rupee opened 10 paise higher at ₹94.39 against the US dollar on Monday, 7 September, as the Reserve Bank of India’s recent intervention is expected to cushion the impact of elevated crude oil prices and growing expectations of a US Federal Reserve rate hike next week.
The Indian currency gained nearly 1% last week, easing some of the bearish sentiment in the market. Traders cited by Reuters said the RBI’s sustained presence in the foreign exchange market has helped limit pressure on the rupee from rising oil prices and a more hawkish outlook on US monetary policy.
As per Reuters report, a currency trader at a bank said the Reserve Bank of India (RBI) has changed the tone around the rupee, with market participants now watching whether the central bank maintains its active intervention and provides enough support for the currency to sustain or extend its recent gains.
The rupee is likely to remain dependent on RBI support at the start of the week, as crude oil prices continue their upward move and stronger-than-expected US jobs data has increased expectations of a Federal Reserve rate hike at its September 15-16 meeting.
RBI’s record forward position could limit gains
The RBI’s net short dollar forward position stood at a record $136.77 billion at the end of July, with around $22.9 billion due to mature over the following three months.
Currency strategists said these maturities could gradually generate additional demand for dollars, potentially limiting the rupee’s ability to appreciate sharply.
In other words, the RBI’s intervention has provided meaningful support to the rupee, but part of that support comes with future dollar obligations. As these positions mature, the resulting dollar demand could act as a counterweight to the currency’s recent gains.
Middle East tensions push crude towards $97
The global backdrop is also turning increasingly challenging. Escalating tensions between the US and Iran have pushed Brent crude prices closer to $97 a barrel, reviving concerns about a prolonged disruption to Middle East energy supplies.
Market experts are particularly focused on the Strait of Hormuz, a critical route for global oil shipments. Before the conflict, around 100 ships reportedly passed through the strait each day. That number has since fallen sharply to roughly seven vessels a day.
While the waterway has not been completely shut, the sharp decline in traffic has raised concerns about potential supply disruptions.
For India, higher crude prices are particularly significant because they can widen the import bill and increase demand for dollars, putting renewed pressure on the rupee.
Strong US jobs data raises Fed concerns
Adding to the pressure, the latest US employment data came in stronger than expected. Non-farm payrolls increased by 162,000 in August, well above economists’ expectations of around 56,000.
Currency strategists said the stronger labour-market reading has increased expectations that the US Federal Reserve could still raise interest rates. Markets are currently pricing in around a 58% probability of a future rate hike.
A stronger US dollar and higher US interest rates could make emerging-market assets less attractive, potentially weighing on currencies such as the rupee.
Rupee outlook: RBI support versus global headwinds
Experts believe the rupee currently has strong domestic support from RBI intervention, record foreign exchange reserves and abundant banking-system liquidity. However, higher crude prices, a potentially hawkish Fed, maturing RBI forward positions and a possible yen carry-trade unwind could limit further appreciation.
The key question for the currency market, therefore, is whether the RBI’s continued presence can offset these external pressures and allow the rupee to sustain its recent gains.
Rupee Outlook
Amit Pabari, MD, Research Team, CR Forex Advisors, the rupee has entered the week on a stronger footing, supported by heavy FCNR-related dollar inflows. However, the global backdrop remains a challenge. 94.00–94.20 remains the key support zone. If global headwinds intensify, USDINR could move back towards 95.00, 95.50 and eventually 96.00.
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