The Indian rupee posted its strongest single-day gains in two months, as it ended the last trading day of May at the 95 mark against the US dollar. In the intraday session, the currency briefly charted into the 94-level territory, boosted by a decline in crude oil prices and optimism over an extension of the ceasefire between the US and Iran.
The local currency started Friday’s trade at the 95.55 per dollar mark and went on to strengthen to 94.95 per dollar, as traders reported heavy dollar sales were carried out by the RBI. Media reports of the possible reopening of the chokepoint, the Strait of Hormuz, added to the upward momentum for the currency.
Crude declines add to the gains for rupee
Market optimism reignited as news agency Reuters reported that Washington and Tehran are likely to extend their ceasefire and are also considering unrestricted shipping through the waterway passage, the Hormuz Strait.
Oil prices extended declines as Brent crude was quoted around the $92 per barrel mark, down nearly 19% from its 2026 highs, while the US benchmark West Texas Intermediate was trading near the $87 per barrel mark, down 16% from this year’s peak.
This boosted sentiment for the local currency, as India is a net oil importer and a decline in oil prices weighs positively on emerging market currencies, as oil is predominantly traded in dollars, and lower oil prices reduce demand for the greenback.
Ensuring not to breach 96 again
The appreciation in the domestic currency also came as the central bank was cutting long USD-/INR positions developed over the last two days, said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP.
“RBI ensured that the rupee did not cross 96 after it fell to 96.35 in the NDF on the US striking Iran again for a second time in three days,” Bhansali added.
On May 20, the local currency hit its record low of 96.96 per dollar. Since then, the RBI has undertaken a spate of measures, including liquidity operations and forex management, to help curb speculative positions.
FPI outflow still a matter of concern
Industry experts still remain cautious about the local currency, citing high foreign investor outflows and a ballooning current account deficit. So far this year, FPIs have sold domestic equities worth $24 billion, surpassing the previous year’s record outflow.
As per NSE data as of May 27, FIIs were net sellers of Indian equities worth Rs 655 crore.
On a calendar-year basis, the currency has depreciated by 5% and continues to remain the worst-performing Asian currency.
RBI rate hike on charts
Brokerages and experts have said that the Indian central bank may hike rates to stabilise the currency. Economists at MUFG Bank expect the RBI to start rate hikes at its upcoming MPC meeting and continue them in the August meeting as well.
“We now forecast the RBI hiking rates by at least 50 bps this fiscal year, bringing the terminal repo rate to 5.75%,” MUFG said.
Amit Pabari, Managing Director of CR Forex Advisor, says that the central bank may keep rates unchanged, but the “possibility of a slightly cautious surprise now appears higher.”
Outlook
“Technically, the rupee has immediate resistance near 94.60, while 95.30 remains an important support zone in the near term,” said Jateen Trivedi, Vice President of Technical Research of Commodity and Currency at LKP Securities.
