The Indian rupee opened 37 paise higher to Rs. 94.30 against the US dollar after closing at 94.67 in yesterday’s session. This decline comes as Brent crude futures declined 1.80% to $72.41 a barrel, while US West Texas Intermediate (WTI) fell 1.59% to $69.22 a barrel.
The oil prices declined more than 10% this week and over 21% for the month, thereby easing concerns about India's oil import bill.
The rupee's recovery was driven by a sharp correction in global crude oil prices. Oil prices for both crude below $73 per barrel, matching prices before the Middle East war, after reports suggested oil tankers had resumed transit through the Strait of Hormuz following progress in ceasefire negotiations between US-Iran.
For India, which imports around 85% of its energy requirements, the decline in energy prices will provide significant relief as it will reduce the country's import bill, improve the current account deficit, and ease inflationary pressure. The fall in crude also improves external balances, giving the domestic currency fundamental support.
The rupee was trading in a wide 50-paise range on Wednesday, briefly nearing Rs. 95 per US dollar before recovering sharply. The dealers feel the RBI intervened in the foreign exchange market via the public-sector banks to reduce excessive volatility in the market.
According to analysts at Finrex Treasury Advisors, "With oil prices near $72.50 per barrel, the rupee is in the most comfortable zone despite a higher dollar index and weaker Asian currencies. While the RBI does not target a specific exchange rate, it intervenes to prevent excessive volatility."
Market participants also said that the RBI Governor Sanjay Malhotra's remarks calmed forward premium markets, further adding to the sentiment.
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The US Dollar Index (DXY) remained around the 101.50 level, near its highest level in over a year, as investors priced in more rate hikes from the Federal Reserve.
Markets have continued to price high chances of more US monetary tightening this year, keeping the US Treasury yields near multi-month highs and supporting dollar-denominated assets.
According to the CME FedWatch Tool, traders now expect three rate hikes from the US Federal Reserve this year, with a 67% chance of a September hike.
“With oil prices near to $72.50 per barrel, the rupee is in the most comfortable zone, despite a higher dollar index and falling Asian currencies… While the RBI says it does not target a specific exchange rate, it intervenes to prevent excessive volatility,” analysts from Finrex Treasury Advisors said.
The Indian rupee started the day on a strong note, trading at 94.30 against the US dollar, aided by a strong correction in global crude oil prices that are now trading below pre-Iran war levels, according to Pinky Yadav, Commodity Fundamental Analyst at Choice Broking.
The immediate course of the rupee will rely on crude oil prices, the strength of the US dollar, foreign portfolio investment and the RBI's intervention plan.