The opening marks a modest recovery for the currency after it recently slipped decisively below the ₹96-per-dollar level. Softer crude oil prices and a reduction in expectations of a US Federal Reserve rate hike this month have provided some relief to the rupee.
Why is the rupee under pressure?
The rupee has been facing pressure from a stronger US dollar, elevated US Treasury yields and high crude oil prices.
The dollar has gained support from higher US Treasury yields, while expensive crude can weigh on the Indian currency because India imports a large share of its oil requirements. Higher import costs can increase demand for dollars and put pressure on the rupee.
The currency has now moved below the ₹96-per-dollar level, which traders consider an important psychological mark.
RBI intervention remains a factor
The Reserve Bank of India has continued to be a presence in the foreign exchange market, helping limit the pace of the rupee’s decline.
A currency trader at a private sector bank said the rupee’s stronger opening could partly reflect expectations of RBI intervention. However, the trader added that with the ₹96 level decisively breached, the possibility of further weakness has increased.
Fed rate hike expectations ease
Expectations of a US Federal Reserve rate hike at its October meeting have also eased after US employment data showed weaker-than-expected job additions.
The probability of a rate hike this month has fallen to around 20%, according to the report. A lower likelihood of higher US interest rates can reduce support for the dollar and, in turn, provide some relief to emerging-market currencies such as the rupee.
However, the relief may not be sustained if inflation pressures keep US bond yields elevated. Morgan Stanley said investors appeared reluctant to draw broader conclusions from a single softer employment reading while inflation risks remained high.
What does a weaker rupee mean for consumers?
Movements in the rupee matter for households because a weaker currency can make imports more expensive.
For consumers, this can affect the cost of imported goods and services, as well as expenses such as overseas education and foreign travel. On the other hand, a weaker rupee can benefit exporters because their dollar earnings translate into more rupees.
For an individual buying dollars, the key point is simple: the higher the rupee-per-dollar rate, the more rupees are needed to buy the same $1.
Crude oil prices will also remain important for the currency. Oil prices eased on Monday as higher crude exports from the West Asia and oil stock releases by G7 countries helped ease supply concerns.
-With Reuters inputs
