Despite the uptick at the open, sentiment around the currency remains fragile after it logged a sharp 1.42% decline last week—its steepest weekly fall in over three-and-a-half years. The slide was driven by a combination of external and domestic factors, including a surge in crude oil prices and a partial rollback of supportive measures by the Reserve Bank of India.
Oil prices have emerged as the dominant driver in recent weeks. Brent crude rose to nearly $108 per barrel on Monday (April 27), its highest level in three weeks, extending last week’s 16.5% rally. Supply concerns persist amid stalled US-Iran negotiations and continued disruptions around the Strait of Hormuz, keeping markets tight.
Elevated crude prices are increasing demand for dollar purchases from oil importers, particularly through hedging activity, which in turn is pressuring the rupee. Market participants say exporters have shown limited urgency to sell dollars at current levels, while capital inflows remain subdued.“At these oil prices, there’s little relief for the rupee,” a currency trader at a private-sector bank said, noting that importer hedging demand has intensified while inflows have yet to pick up meaningfully.
Foreign portfolio flows, though moderating, continue to remain negative. Outflows from Indian equities have slowed to just under $5 billion so far this month, compared with more than $12.5 billion in March. However, the absence of a sustained reversal in flows, coupled with the prospect of a higher oil import bill, continues to act as a drag on the currency.
Traders expect these factors—particularly oil price movements—to remain key determinants of the rupee’s trajectory in the near term.
–With Reuters inputs
