The Indian rupee opened flat at 95.13 against the US dollar on Thursday, 6 August, supported by broad-based weakness in the greenback amid easing expectations of a US Federal Reserve rate hike next month and Brent crude holding near its recent lows.
The domestic currency extended its recovery after breaching the 95-per-dollar mark for the first time in a month on Wednesday, although gains were capped by dollar demand from importers and intraday speculative buying.
The rupee briefly weakened to around 95.25 during the previous session before recovering, as volatility in crude oil prices continued to influence sentiment. The currency has now rebounded nearly 1.7% from its recent lows.
According to a Reuters report, a currency trader said Wednesday’s trading session remained broadly supportive for the rupee, helping maintain a positive underlying bias despite intermittent demand for the US dollar from corporates and traders.
RBI stays patient on rates
The Reserve Bank of India (RBI) struck a measured tone in its August monetary policy, choosing to keep interest rates unchanged while signalling that it would wait for greater clarity on inflation before considering any policy action.
According to RBI Governor Sanjay Malhotra, the central bank has revised its FY27 inflation forecast down to 5.0% from 5.1%, while core inflation has been lowered more sharply to 4.3% from 4.7%. At the same time, the RBI marginally raised its GDP growth projection to 6.7% from 6.6%, reflecting confidence in the resilience of the domestic economy despite an uncertain global backdrop.
Strong external buffers support the rupee
India’s external sector continues to provide support to the rupee. The country’s foreign exchange reserves have climbed to nearly a three-month high of $692.9 billion, sufficient to cover more than ten months of imports. Meanwhile, foreign investors turned net buyers of Indian equities in July, investing $2.12 billion, marking the first monthly inflow in five months.
Challenges remain beneath the surface
Despite the comfortable reserve position, some risks persist. The RBI’s net forward dollar commitments have crossed $100 billion, which could limit the central bank’s flexibility to intervene aggressively during periods of heightened volatility.
Domestic economic indicators also point to a moderation in growth. India’s HSBC Composite PMI eased to 54.3 in July, its lowest reading since March 2022, indicating that while economic activity continues to expand, the pace of growth has softened.
Globally, signs of slowing momentum are also emerging. In the United States, private sector employment increased by just 44,000 jobs in July, the weakest monthly gain in six months, reinforcing expectations that the world’s largest economy is gradually cooling.
Oil prices remain the key driver
According to market experts, crude oil prices continue to be the most important near-term driver for the rupee. Brent crude has declined more than 8% over the past two sessions as hopes of diplomatic progress involving Iran and Oman raised expectations of smoother shipping through the Strait of Hormuz, easing concerns over global supply disruptions.
However, analysts caution that geopolitical risks remain elevated. While diplomatic efforts have gathered pace, Iran-backed Houthi attacks on Saudi oil tankers and renewed statements from Iran’s Revolutionary Guard on its nuclear programme highlight the fragile nature of the situation.
Experts believe the rupee’s near-term direction will largely depend on whether easing oil prices are sustained or geopolitical tensions once again disrupt energy markets.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, for now, the rupee finds itself caught between encouraging diplomatic headlines and lingering geopolitical risks. Positive developments around Hormuz could help it revisit the 94.80–95.00 zone, while any disappointment may see USD/INR drift back towards 95.80–96.20.
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