The domestic currency opened at 95.28 per US dollar, compared with Thursday’s (August 6’s) close of 95.22, as higher oil prices increased concerns over India’s import bill and inflation outlook.
Brent crude rose nearly 4% overnight and extended gains in Asian trade, climbing to around $84 a barrel, after renewed concerns over access to the Strait of Hormuz. Iran, working with Oman, proposed new rules that could restrict the movement of vessels deemed hostile through the strategic waterway, reviving fears of supply disruptions.
Since India imports more than 85% of its crude oil requirements, higher oil prices typically increase demand for dollars from oil importers, putting pressure on the rupee.
Market participants said the Reserve Bank of India (RBI) likely stepped into the foreign exchange market to curb excessive volatility. According to Reuters, traders estimated the rupee could have opened around 95.35-95.40 per dollar, but suspected RBI dollar sales helped limit losses. The currency was last trading around 95.27 per dollar.
The rupee’s movement in recent months has closely tracked crude oil prices, with RBI intervention also playing an important role. The currency had recently strengthened beyond the 95-per-dollar level after Brent crude slipped below $80 a barrel and the central bank sold dollars in the market.
Apart from oil prices, investors are awaiting the US non-farm payrolls report due later on Friday, which could provide fresh cues on the US Federal Reserve’s interest rate trajectory.Economists polled by Reuters expect the US economy to have added 80,000 jobs in July, following an increase of 57,000 in June, while the unemployment rate is expected to remain at 4.2%.
A stronger-than-expected jobs report could reinforce expectations that the Federal Reserve may keep monetary policy tighter for longer, supporting the dollar and adding further pressure on emerging market currencies, including the rupee.
