The rupee opened sharply higher by 37 paise at 94.30 against the US dollar on Thursday, 25 June, supported by a steep decline in crude oil prices, which have now fallen below levels seen before the Iran conflict.
The domestic currency had come close to breaching the 95-per-dollar mark in the previous session before reversing course, aided by likely intervention from the Reserve Bank of India (RBI). Comments from RBI Governor Sanjay Malhotra also helped ease pressure on forward premiums.
Despite continued weakness across most Asian currencies amid strong safe-haven demand for the US dollar and expectations of higher US interest rates, the rupee managed to outperform its regional peers.
According to a Reuters report, traders expect the rupee’s resilience to continue, even as the dollar index remains near multi-month highs and most Asian currencies extend their losses.
Market participants attributed the rupee’s rebound to a combination of RBI intervention and the sharp correction in crude oil prices. Brent crude fell more than 4% on Wednesday and extended losses by another 2% in Asian trading, slipping to $72.28 per barrel as stranded oil tankers resumed movement through the Strait of Hormuz following an initial agreement aimed at ending the US-Israel conflict with Iran.
Rupee Outlook
According to Pinky Yadav, Commodity Fundamental Analyst at Choice Broking, the Indian rupee opened stronger at 94.30 against the US dollar, supported by a sharp correction in global crude oil prices, which have fallen below levels seen before the Iran conflict. Brent crude has declined more than 10% this week and over 21% for the month, easing concerns over India’s import bill and providing support to the domestic currency.
Yadav noted that foreign inflows into Asian bond markets rose to a three-month high in May, further aiding sentiment. She also highlighted that RBI Governor Sanjay Malhotra recently reiterated that it is premature to discuss interest rate hikes and emphasised that the central bank does not target any specific exchange rate for the rupee. However, market participants continue to expect RBI intervention through state-owned banks to curb excessive currency volatility.
Despite positive factors, rupee gains were capped as the US dollar hovered near a one-year high of 101.5on the Dollar Index, amid expectations that the Federal Reserve may maintain a tighter monetary policy stance for longer.
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