The domestic currency had opened at 94.92/$, moving below the 95-per-dollar mark for the first time since July 8. The opening level marked a gain of 46 paise over the previous close, taking the currency to its strongest level in nearly a month and extending its recovery from recent lows to almost 2%.
The recent strength in the rupee has been driven largely by the sharp decline in crude oil prices. Brent crude has fallen from a recent peak of around $102 per barrel to below $79 per barrel, reducing pressure on India’s import bill.
Brent crude prices dropped 5.2% on Tuesday (August 4) and extended losses by another 1% in Asian trading after comments from Qatari and US officials raised expectations of a possible diplomatic resolution to the five-month-long Iran conflict.
A fall in oil prices typically supports the rupee as India, one of the world’s largest crude importers, spends fewer dollars on energy purchases.
“Oil price moves have been one of the biggest drivers of the rupee and its near-term direction. For the rupee to sustain current levels, crude prices need to remain contained,” a currency trader said.
Despite opening below the 95-per-dollar mark, the rupee gave up part of its gains during the session and settled at 95.12/$. Even so, the currency ended the day stronger than its previous close, extending its recent recovery as lower crude oil prices continued to improve sentiment towards the domestic currency.
