Rising oil prices and Middle East tensions weigh on the currency, while RBI intervention helps limit the decline

The Indian rupee weakened 10 paise to 94.66 against the US dollar in early trade, pressured by elevated crude oil prices and renewed geopolitical tensions in the Middle East. The domestic currency opened at 94.49 at the interbank foreign exchange market before slipping to 94.66.

The decline followed a 13-paise fall in the previous session, when the rupee closed at 94.56 against the American currency. Brent crude was trading near $98 per barrel, raising concerns over India’s import bill and increasing demand for the US dollar.

RBI intervention provides support

Forex traders said continued dollar sales by the Reserve Bank of India and strong foreign-currency inflows under special schemes helped keep the rupee within a relatively narrow range despite external pressures.

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors, said RBI intervention has been particularly important in preventing higher oil prices from translating into a sharper depreciation of the rupee.

According to Bhansali, the rupee is expected to remain in the range of 94.00 to 94.75 in the near term, provided crude prices remain around current levels and the central bank continues to manage volatility.

Crude oil and geopolitical risks remain key drivers

Brent crude, the global oil benchmark, rose 0.63 per cent to $97.61 a barrel in futures trade amid escalating US-Iran tensions and concerns over possible disruption to oil flows through the Strait of Hormuz.

India imports a large share of its crude oil requirement, making the rupee particularly sensitive to global energy prices. A sustained rise in crude could increase the country’s trade deficit, raise import costs and strengthen demand for dollars.

The dollar index, which measures the greenback’s performance against a basket of six major currencies, was trading at 98.80, down 0.37 per cent. The weaker dollar provided some support to Asian currencies, although oil-related concerns continued to weigh on the rupee.

Importers increase hedging activity

Market participants said higher crude prices have encouraged importers, including oil-related companies, to hedge their foreign-currency requirements. Such hedging activity can increase near-term demand for dollars and restrict the rupee’s recovery.

At the same time, exporters may delay selling dollar receipts if they expect the domestic currency to weaken further. This creates a push-and-pull situation in the foreign exchange market, with importer demand counterbalanced by RBI intervention and foreign-currency inflows.

Reuters reported that state-run banks were seen selling dollars around the 94.70 level, indicating continued central-bank support for the currency.

Inflation data and Fed policy in focus

Market participants are awaiting consumer price inflation data from India and the United States for further direction. The US Federal Reserve’s Federal Open Market Committee meeting scheduled for September 16 will also be closely watched for signals on interest rates.

A stronger-than-expected US inflation reading could reduce expectations of monetary easing and support the dollar. In contrast, softer inflation data could improve risk appetite and provide some relief to emerging-market currencies.

Domestic equities also opened lower, with the Sensex declining 382.25 points to 75,750.56 and the Nifty falling 97.80 points to 23,681.80. Foreign institutional investors, however, remained net buyers of Indian equities in the previous session, purchasing shares worth ₹280.13 crore.

Market Outlook

The rupee is likely to remain volatile but range-bound in the near term, with RBI intervention limiting sharp movements. However, a prolonged rise in crude prices or further escalation in Middle East tensions could increase depreciation risks.

The next major triggers for the currency will be global oil prices, foreign fund flows, India and US inflation data, and the Federal Reserve’s policy guidance. A sustained move above the 94.75 level could signal additional pressure, while continued RBI support may keep the rupee near the 94.00–94.75 range.