The currency had gained 20 paise in the previous session, closing at 96.24/$ after touching its strongest level in two weeks. The recovery was supported by dollar inflows following measures announced by the Reserve Bank of India (RBI) to support the rupee.
Why did the rupee fall today?The rupee came under pressure as crude oil prices extended gains amid renewed geopolitical tensions in West Asia. Brent crude crossed $92.50 a barrel, hitting its highest level in nearly six weeks.
Concerns over possible disruptions to energy supplies increased after US forces reported strikes on Iranian military targets, while Kuwait reported drone attacks. Market participants said risks to oil shipments through key routes, including the Red Sea and Strait of Hormuz, have kept a geopolitical risk premium in crude prices.
For India, higher crude prices are a concern as the country imports a large share of its oil requirement. A sustained increase in oil prices can raise the import bill, widen the trade deficit and increase demand for dollars, putting pressure on the rupee.
The dollar also benefited from safe-haven demand as investors moved towards US assets amid heightened geopolitical uncertainty. The 10-year US Treasury yield rose to 4.64%, its highest level in two months, making dollar-denominated assets more attractive.RBI support cushions rupee
Market participants said the RBI’s interventions around the 96.50/$ level have helped limit volatility. Traders expect the central bank to step in further if the rupee moves closer to its record low of 96.96/$.
“The recent gains were largely driven by position adjustments, with inflow-related developments providing a semblance of positive sentiment,” a currency trader said.
Economists said foreign currency inflows following the RBI’s measures could boost India’s forex reserves and strengthen the central bank’s ability to manage sharp currency movements.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, an Indian treasury and foreign exchange consulting firm, said RBI measures to attract overseas deposits have generated significant foreign currency inflows, providing support to the rupee.
He added that market participants are watching for RBI intervention through state-owned banks to smooth currency volatility, with the central bank appearing to allow gradual adjustments while preventing disorderly moves.
(With Reuters inputs)
