The Indian rupee opened flat at 95.33 against the US dollar on Tuesday, 4 August, as uncertainty surrounding a potential diplomatic resolution to the US-Iran conflict and persistent importer demand for dollars kept the domestic currency under pressure.
According to a Reuters report, the rupee had climbed to a one-month high of 95.1175 in the previous session before retreating as importers stepped up dollar purchases to hedge future payment obligations. The report noted that importer demand, which has remained elevated over the past few days, intensified after the rupee’s sharp rebound from near 96.70 levels.
A currency trader quoted by Reuters said the rupee’s recent recovery has begun to encounter genuine corporate demand for dollars, adding that such importer-led hedging is a natural response following the currency’s appreciation.
According to market experts, the rupee’s recent recovery was triggered after US President Donald Trump called off a planned military strike on Iran, raising hopes of a diplomatic resolution to the conflict that has stretched into its fifth month. The announcement sparked a sharp decline in crude oil prices, with Brent crude and WTI retreating from recent highs. For India, a net oil importer, softer crude prices help reduce import costs, ease demand for US dollars, and provide support to the domestic currency.
Diplomacy remains uncertain
However, experts cautioned that the outlook remains fluid. While Trump suggested that discussions with Iran were underway and described it as Tehran’s “last chance” to reach an agreement, Iran denied that any negotiations were taking place. As a result, markets continue to react to conflicting geopolitical headlines, keeping volatility elevated.
Global cues support Asian currencies
Experts also pointed to broader global factors supporting the rupee. The Japanese yen strengthened to a three-month high after the United States and Japan confirmed coordinated intervention to stabilise the currency. The move kept the US dollar index subdued near the 99.8 mark, allowing most Asian currencies, including the rupee, to gain against the greenback.
Higher US bond yields remain a risk
Despite the improvement in sentiment, experts said risks persist. The US 10-year Treasury yield continues to trade above 4.5%, making US assets more attractive and potentially diverting capital away from emerging markets such as India. Rising global bond yields could therefore limit further gains in the rupee.
Seasonal trends also warrant caution
According to experts, historical trends suggest that August has typically been a challenging month for the rupee. Data since 2008 shows that the USD/INR pair has risen in nearly three out of every four Augusts, indicating seasonal pressure on the Indian currency.
Focus shifts to the RBI policy
Experts believe investors will now closely watch the Reserve Bank of India’s (RBI) monetary policy meeting this week. They expect the central bank to keep the policy repo rate unchanged, as inflation remains broadly under control despite higher energy prices.
The RBI also enters the policy review with a relatively comfortable external position. Measures announced in the previous policy, including incentives for overseas dollar deposits and easier access to government securities for foreign investors, have helped attract nearly $40 billion in inflows, strengthening India’s external buffers.
Meanwhile, retail inflation accelerated to 4.38% in June, crossing the RBI’s 4% target for the first time in 17 months, but it remains well within the central bank’s 2%-6% tolerance band. With core inflation also hovering around 4%, experts expect the RBI to remain on hold while assessing the impact of geopolitical developments and elevated crude oil prices on inflation and growth.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, technically, 95.10–95.20 remains an important support zone for USD/INR. As long as this region holds, the pair may gradually move back towards 95.80–96.20 over the coming sessions.
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.
