The Indian rupee opened stronger against the US dollar on Tuesday, November 3, gaining 24 paise from its previous closing level, as a sharp decline in crude oil prices eased concerns over India’s import bill and external balances.
The rupee opened at 94.66 per dollar, compared with Monday’s (November 2’s) close of 94.90.
This marks an appreciation of 24 paise against the US currency.
The improvement comes after Brent crude prices plunged around 11% on Monday, following developments that raised hopes of a possible resolution to the US-Israeli war with Iran and a stabilisation of oil supplies from the West Asia. Brent crude was trading at around $104.70 per barrel in Asian trade, holding on to much of its previous session’s decline.
Why falling crude prices matter for the rupee
India imports around 90% of its crude oil requirements, making the currency particularly sensitive to movements in international oil prices. When crude becomes expensive, India’s import bill rises, increasing demand for dollars to pay for imports and putting pressure on the rupee.
Higher oil prices can also worsen the country’s external balance, increase currency-hedging demand among companies and weigh on foreign portfolio investment flows.
A sustained decline in crude prices, therefore, could provide some relief to the rupee by easing these pressures. Market participants see oil prices as an important factor in determining the currency’s near-term direction.
“The biggest thing that can change the rupee’s fortunes and provide relief is oil,” a currency trader at a private sector bank told Reuters, referring to the possibility of a sustained decline in crude prices if a lasting truce is reached in the West Asia.
Why the rupee’s gains may remain limited
Despite the positive opening, the rupee could face resistance at higher levels. The currency trader cited the 94.50-94.70 range as a significant technical resistance zone.
Strength in the US dollar and weakness across other Asian currencies could also limit the rupee’s gains. Oil-sensitive currencies such as the Indonesian rupiah and Philippine peso remained under pressure, indicating continued caution among investors towards Asian currencies.
Broader global market sentiment remains another factor to watch. Asian equities were trading lower, with MSCI’s broadest index of Asia-Pacific shares outside Japan declining 0.8%, as investors assessed global risks and developments ahead of crucial US midterm elections.
The Reserve Bank of India (RBI) has also remained active in the foreign exchange market, selling dollars and deploying other measures to manage pressure on the rupee.
For the currency, the sustainability of the crude oil decline and developments in the West Asia will remain key factors to watch in the coming sessions.
-With Reuters inputs
