Indian Rupee Edges Up to 96.49 Amid Oil Price Surge

The Indian Rupee advanced marginally by 0.1% against the US dollar on Thursday, opening at 96.49 after closing at 96.56, its weakest in over two months. This slight recovery faces immediate pressure from escalating crude oil prices, which are limiting further gains.

Key Rupee & Oil Metrics

• Rupee opened at: 96.49 against the US dollar
• Previous close: 96.56
• Gain: 0.1%
• Expected trading range: 96.50-96.70
• Brent crude: above $96 a barrel, a six-week high

Market traders anticipate the rupee will remain strained throughout the day, likely trading within the 96.50-96.70 range. Substantial relief for the currency is improbable if crude oil prices continue their upward trajectory, according to a currency trader from a private sector bank.

Drivers Behind Oil Price Surge

• Renewed tensions between the US and Iran
• New US strikes on Iran-linked assets and Yemen’s Houthis
• Attacks near critical shipping lanes in the Red Sea
• Houthi threats against vessels transporting Saudi crude

ING suggested in a recent note that current Brent prices might still be undervalued given the heightened risks to shipments through the Persian Gulf and the threat to Saudi crude exports via the Red Sea. Brent crude has climbed above $96 a barrel, reaching its highest level in six weeks amidst these geopolitical developments.

RBI Intervention & Forex Activity

The Reserve Bank of India (RBI) is expected to intervene to mitigate any sharper declines in the rupee. Data released by the RBI on Wednesday revealed the central bank was a net seller of $6.1 billion in the foreign exchange market during May.

• RBI net seller in May: $6.1 billion
• Rupee record low in May: 96.96 per dollar
• RBI net outstanding forward dollar sales (end May): $106.6 billion
• India’s foreign exchange reserves: sufficient for 10 months of imports

This period of RBI selling coincided with intense pressure on the rupee due to surging oil prices, though the rupee recovered from a record low of 96.96 per dollar in May. Measures to boost dollar inflows, including tax cuts on foreign debt investments, also helped cushion losses.

Dalal Street’s Performance

Concurrently, Dalal Street experienced a weak opening with benchmark indices falling by nearly 0.5% in early trade. The BSE Sensex was trading at 76,520.58, down 234.47 points or 0.31%.

The rupee’s vulnerability persists as long as oil prices climb, with a risk of Brent crude exceeding the $100 mark. Foreign inflows into Indian bond and equity markets in June and July offer some counter-balance, but oil remains the dominant pressure point.