The rupee appreciated 39 paise, or around 0.41%, to 94.54 against the US dollar in early trade on Wednesday (October 21), compared with Monday’s (Ocyober 19’s) close of 94.93.
The domestic currency was supported by dollar inflows linked to the Jio Platforms IPO, which opened for subscription on Wednesday, along with continued intervention by the Reserve Bank of India (RBI) to support the rupee.
The currency’s gains come despite continued concerns over elevated crude oil prices and geopolitical risks in the West Asia, which could put pressure on the rupee by increasing India’s import bill and demand for dollars.
What is supporting the rupee?
Expected dollar inflows linked to Jio Platforms IPO
The Jio Platforms IPO, which opens for subscription on Wednesday, has attracted strong institutional interest. Bids for the anchor investor portion reportedly exceeded 30 times the shares on offer.
Foreign investors often use sell-buy swaps to manage dollar requirements around IPO allotments. Under these transactions, investors sell dollars for rupees in the spot market and agree to buy the dollars back at a later date.
After share allotments, investors may unwind these positions and sell dollars outright to fund their investments. This can increase dollar supply in the domestic market and support the rupee, although the extent and timing of the impact depend on actual investor flows.
RBI intervention near the 95-per-dollar level
The RBI has also been selling dollars in the market around the 95-per-dollar level, according to traders, helping support the domestic currency.
Dollar sales by the central bank increase the supply of dollars in the market and can help limit rupee depreciation. The currency has recorded gains over seven consecutive trading sessions, according to the report, but has faced resistance around the 94.70-per-dollar level.
A sustained move beyond that level could depend on whether IPO-related flows provide additional support.
Why are crude oil prices a risk for the rupee?
Higher crude oil prices can put pressure on the rupee because India imports a large share of its oil requirements. When oil prices rise, the country’s import bill can increase, raising demand for dollars from oil-importing companies.
Brent crude rose 1.5% to $110.34 per barrel on Wednesday amid concerns over Middle East supplies, including risks to Red Sea shipping and threats to oil infrastructure in Saudi Arabia.
If elevated oil prices persist, they could offset some of the support from IPO-related dollar inflows and RBI intervention.
What should currency watchers track?
The rupee’s near-term movement will depend on the balance between dollar supply from IPO-related flows and RBI intervention, and dollar demand arising from oil imports and other external payments.
The 94.70-per-dollar level remains an important point to watch, given the currency’s reported difficulty in moving past it. Crude oil prices and developments in the Middle East could also influence the direction of the rupee.