However, the recovery remained limited as the currency continued to face pressure from rising crude oil prices, weak global risk appetite and sustained dollar demand from importers. The rupee is now less than 0.5% away from its record low of 96.96 per dollar, touched in May.
The currency has weakened over the past four sessions, slipping past levels that many market participants had earlier seen as key support zones. Traders said the pressure has largely come from higher demand for dollars from importers and exporter-related flows, along with some large overseas payments.
Crude oil, West Asia tensions weigh on rupee
Rising crude oil prices have emerged as a major concern for the Indian currency. Brent crude has moved close to $85 per barrel after gaining around 12% this week amid escalating tensions in the West Asia.
The increase in oil prices has raised concerns over India’s import bill as the country meets a significant portion of its crude oil requirements through imports. A rise in crude prices typically increases dollar demand from oil marketing companies, putting pressure on the rupee.
Global risk sentiment has also weakened, with Asian equities falling and US equity futures extending losses. Concerns over possible disruptions to crude supplies through the Strait of Hormuz, a key route for global oil shipments, have added to market uncertainty.
RBI continues to support rupee
The Reserve Bank of India (RBI) has been intervening in both the spot and non-deliverable forward markets to reduce excessive volatility in the currency.
Market participants said the RBI’s intervention has been relatively measured given the intensity of pressure on the rupee. Traders said the central bank has not appeared to defend a particular exchange-rate level aggressively but has focused on ensuring orderly movement in the currency.
Foreign inflows provide some relief
The rupee’s decline has come despite a turnaround in foreign portfolio flows, particularly into Indian equities.
Foreign investors have bought around $1.5 billion worth of Indian equities so far this month, marking a reversal from more than $5 billion of outflows recorded in June. Debt markets have also continued to attract overseas investors, with around $500 million flowing in this month after more than $3 billion of inflows in June.
Despite these inflows, continued dollar demand from importers and elevated crude prices have kept the rupee under pressure.
Going ahead, currency markets will closely track crude oil movement, developments in the West Asia, global risk sentiment and the RBI’s actions in the foreign exchange market to assess the rupee’s near-term direction.
-With Reuters inputs
