The rupee opened at 94.46 against the US dollar, compared with Thursday’s (September 3’s) close of 94.49, gaining 3 paise.
The currency has now strengthened for five consecutive sessions.
Why has the rupee been gaining?
One of the key factors supporting the rupee is the improvement in foreign currency inflows.
According to Reserve Bank of India data, India mobilised $127.23 billion through FCNR(B) deposits under a special central bank programme aimed at strengthening foreign exchange liquidity.
Including overseas foreign currency borrowings and external commercial borrowings, total inflows under the measures stood at $136.377 billion.
The rupee has also benefited from foreign portfolio investor buying. FPIs bought Indian equities worth ₹2,345.87 crore on a net basis on Thursday, according to exchange data.
A weaker US dollar has provided another tailwind. The dollar index, which measures the greenback against a basket of six major currencies, was trading around 99.22, down 0.38%.
Why is crude oil important for the rupee?
The recent rally in crude oil prices could limit the rupee’s gains.
Brent crude was trading at around $96.44 a barrel, up 0.85%, amid renewed tensions between the US and Iran and concerns over possible disruption to oil flows through the Strait of Hormuz.
India imports a large share of its crude oil requirement. Higher oil prices can therefore increase the country’s import bill and demand for dollars, putting pressure on the rupee.
“However, elevated crude oil prices and any fresh escalation of tensions between the US and Iran may cap sharp upside,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.
What could decide the rupee’s next move?
The rupee’s near-term direction is likely to depend on the balance between strong foreign inflows and oil prices.
Anuj Choudhary said the rupee could retain a positive bias amid optimism over foreign inflows, improving risk appetite and a softer US dollar. At the same time, traders will track global cues, including US economic data and expectations around the Federal Reserve’s interest-rate path.
For now, the currency has managed to strengthen despite the rise in crude prices. Whether that trend continues will depend on whether foreign inflows and RBI intervention can offset the pressure from a higher oil import bill.
-With agencies inputs
