The rupee is coming off a three-day winning streak. It touched a two-month high of 94.80 on Tuesday (September 1) and has remained among the better-performing Asian currencies in recent sessions.
The recent gains have come despite several external headwinds. Traders said aggressive intervention by the Reserve Bank of India (RBI), along with dollar selling by foreign banks linked to flows, has supported the rupee.
The key question for the currency market now is whether the RBI will continue to absorb dollar demand arising from higher oil prices. A currency trader at a bank said the central bank is currently the only significant dollar seller in the market, making its intervention important for the rupee to sustain its recent gains.
Why oil prices matter for the rupee
Crude oil prices have risen sharply in Asian trade, with Brent futures climbing to around $95.50 a barrel after fresh exchanges of strikes between the US and Iran raised concerns over possible supply disruptions.
Higher oil prices can weigh on the rupee because India imports a large share of its crude oil requirement. A sustained rise in crude prices can increase the country’s import bill and demand for dollars, putting pressure on the domestic currency.
The jump in oil prices has also pushed US Treasury yields higher. Rising US yields can make dollar-denominated assets more attractive to global investors and strengthen demand for the US currency, adding another layer of pressure on emerging-market currencies such as the rupee.
RBI intervention, foreign flows offer support
The rupee’s recent appreciation has been supported by dollar selling in the market. Banks have also stepped up mobilisation of deposits under the RBI’s concessional FCNR(B) swap window.
The stronger inflows have added to the RBI’s ability to manage dollar liquidity and support the rupee.
On Tuesday (September 1), the rupee had gained 0.24% and closed at around 94.94 per dollar, according to Abhishek Bisen, Head of Fixed Income at Kotak Mutual Fund.
He said the move was supported by bank-led dollar selling associated with MSCI index-rebalancing inflows estimated at about $5 billion, although around $3.5 billion of related outflows remained pending.
Bisen also noted that FCNR(B) deposit mobilisation had reached an estimated $100 billion cumulatively. These inflows helped offset pressure from Brent crude at around $91.88 a barrel, geopolitical tensions in West Asia and expectations of a possible US Federal Reserve rate hike.
The rupee had also gained around 0.2% in August, while stronger-than-expected Q1 FY2026-27 GDP growth of 7.8% provided additional support to market sentiment.
For now, the rupee is balancing two opposing forces: strong dollar inflows and RBI intervention are supporting the currency, while higher crude prices, elevated US yields and geopolitical risks are creating fresh pressure. The extent of further RBI intervention could therefore remain important for the rupee’s near-term trajectory.
-With Reuters inputs
