The rupee opened 9 paise lower at 95.39 against the US dollar on Tuesday, 11 August, pressured by higher oil prices amid stalled US-Iran peace talks. Traders are also looking to the Reserve Bank of India (RBI) for further intervention to limit the currency’s decline.
The rupee has traded in a narrow 95.10-95.30 range over the past three sessions, with strong dollar demand around these levels keeping the currency under pressure, while RBI intervention has helped cap losses.
On Monday, the central bank is believed to have sold dollars near 95.25, even as the rupee weakened, highlighting continued pressure from importer hedging and elevated oil prices.
A currency trader at a bank, cited in a Reuters report, said the RBI has been “consistently” on the offer in dollar/rupee, adding that without the central bank’s intervention, the pair would likely have moved well beyond 95.50.
Global bond yields rise to multi-year highs
Government bond yields across major economies have climbed sharply, with the average yield on global government bonds rising to 3.68%, its highest level since the 2008 financial crisis. UK gilt yields have remained close to 5% for their longest stretch in nearly two decades, while Germany’s 10-year yield has reached its highest level since 2011. Long-term US Treasury yields are also hovering near levels last seen before the global financial crisis, while Japan is witnessing a significant repricing after years of ultra-low yields.
Market experts said the rise in bond yields is important because they form the benchmark for borrowing costs across financial markets. Higher yields can tighten financial conditions, increase volatility in currencies and equities, and put pressure on commodities and precious metals.
Analysts also noted that markets are increasingly factoring in not just monetary policy risks but also fiscal concerns, with elevated government debt, higher borrowing costs and geopolitical uncertainty adding to the pressure.
Rupee caught between oil and inflows
The rupee continues to face pressure from elevated crude oil prices as negotiations over reopening the Strait of Hormuz have become more complicated following fresh demands from US President Donald Trump on Iran, including compensation for damages linked to regional conflicts. The developments reduced hopes of an immediate breakthrough and pushed Brent crude nearly 5% higher.
According to currency market experts, higher crude prices remain a key risk for the rupee as they increase India’s import bill and raise demand for dollars. However, the currency is receiving some support from renewed foreign portfolio inflows, while the upcoming MSCI India index reshuffle is expected to attract nearly $2.3 billion in passive inflows by the end of the month.
RBI intervention limits rupee weakness
Market participants said the positive impact of foreign inflows is currently being offset by higher oil prices and continued RBI dollar purchases. The central bank’s intervention is helping contain volatility, even as underlying pressure on the rupee remains elevated.
Experts expect the 95.10–95.30 zone to act as a crucial support area for USD/INR, with any decline towards this range likely to attract buying interest.
Rupee Outlook
Amit Pabari, Managing Director and Head of Research at CR Forex Advisors, said the 95.00–95.10 zone remains a crucial support area for USD/INR from a technical perspective. As long as this support holds, the pair is likely to retain its upward bias, with 96.00–96.20 emerging as the next near-term target zone. He added that oil prices and the RBI’s dollar buying are likely to remain the key drivers for the rupee, keeping the bias tilted towards further depreciation.
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