Rupee Today: INR Slips Back Above 95 Against US Dollar As Crude Nears $110; Can RBI Defence Hold?
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The rupee opened near 95.20 against the US dollar after closing Friday at 94.89, its sixth straight gain and second consecutive close below 95. Kotak Neo's Anindya Banerjee expects USD/INR to remain in a 94-97 range, with immediate support near 94.50 and the near-term bias neutral.
The Indian rupee slipped back above the 95 mark against the US dollar on Monday, opening near 95.20 as weakness in Asian equities and crude oil above $108 kept pressure on the currency.
The move follows a sharp recovery in the rupee last week. The domestic currency closed Friday at 94.89 against the dollar, marking its sixth consecutive session of gains and its second straight close below 95.
The pressure from oil, however, has not gone away. Brent crude was trading around $108 a barrel on Monday morning after settling Friday at $109.86, its highest close since May. Brent also briefly touched $110, while US crude gained more than 10% last week.
For India, which imports most of its crude requirement, elevated oil prices can increase dollar demand from importers and put pressure on the rupee and the country's import bill.
Anindya Banerjee, Head of Research – Currency, Commodities and Interest Rates at Kotak Neo, expects USD/INR to remain within a broad 94-97 range for now.
“The rupee closed Friday at 94.89, its sixth straight gain and second close below 95, and has opened near 95.20 this morning as Asian equities fell,” Banerjee said. He sees immediate support for USD/INR near 94.50, with the overall bias remaining neutral.
Rupee Today: RBI Measures Change USD/INR Market
The rupee's recovery has come despite continued pressure from crude oil and foreign portfolio outflows.
According to Banerjee, measures taken by the Reserve Bank of India have changed the character of the currency market, with forward premiums now giving exporters an incentive to sell dollars while speculative capacity has been reduced.
India's foreign exchange reserves stood at about $726 billion after falling $8.6 billion in the week to October 9, reflecting the cost of defending the currency in September.
Foreign portfolio outflows of around $5.5 billion so far this month and a 31% rise in crude imports in September remain two key pressure points for the rupee.
There are offsets as well. Exports have risen 23%, while the removal of the US tariff threat on buyers of Russian crude has reduced one potential risk to India's oil import bill.
The Russian oil development is particularly important for India because Russian crude remains the country's largest single source in its oil import mix.
Banerjee said the lifting of the tariff threat “protects the discount our refiners have relied on and takes a tail risk off the import bill” at a time when crude is trading near a five-month high.
Rupee Outlook: Crude Oil Remains The Key Risk
Oil remains the biggest external risk for the rupee. Attempts to increase global supply have so far failed to push crude prices materially lower. The US has offered 17 million barrels from its strategic reserve for exchange, while the International Energy Agency has committed more than 20 million barrels of emergency diesel.
The US has also waived the latest sanctions package on Russia and related tariffs on countries purchasing Russian oil. The move is expected to bring more Russian diesel into the market.
Crude prices have nevertheless remained elevated because oil movement through the Strait of Hormuz continues to be disrupted.
Flows through Hormuz stood at about 11.6 million barrels per day in the week ended October 13, compared with around 17.2 million barrels per day before the conflict.
“Every policy measure announced so far adds supply outside the Gulf or releases stocks. None of it restores the barrels that are not moving,” Banerjee said. He expects the bias in Brent crude to remain bullish as long as prices stay above $100 a barrel.
A sustained move above $110 could push Brent towards $120 over the very short term, according to Banerjee. On MCX, crude faces resistance around ₹9,500, with ₹10,200 as the next objective if that level is crossed. Support is seen around ₹8,900-8,950.
A move towards $120 would be an important risk for the rupee because a higher crude import bill typically increases India's demand for dollars.
There is some relief coming from the other side of the USD/INR equation. The US 10-year Treasury yield ended last week at 5.09%, its biggest weekly decline in more than eight months, and was around 5.06% on Monday morning. The dollar index was near 101.9 after recording its first weekly decline in five weeks.
Expectations of an immediate US Federal Reserve rate hike have also eased sharply, with the probability of a hike this month falling to around 15% from more than 40% a week earlier.
For the rupee, that leaves two opposing forces in play: elevated crude prices and foreign portfolio outflows are keeping depreciation pressure alive, while RBI intervention, stronger exports, lower US yields and a softer dollar are providing support.
For now, Banerjee maintains a neutral view on USD/INR within the 94-97 range, with immediate support around 94.50.
Indian equity and bond markets will remain closed on Tuesday for Dussehra. Attention will then turn to the RBI's minutes on Wednesday for signals on how policymakers are assessing inflation, crude oil and the possibility of a December rate move.
This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Rochelle Britto has spent 8+ years decoding India's markets, businesses, and consumer economy, reporting for ET Prime and Times Internet along the way, covering the stories behind the numbers.
A Mumbai native and perpetual planner of the next holiday, she stays far, far away from the eternal question, “Where are we going next?” When she's not chasing headlines, she's chasing new cultures, open roads, and a bit of quiet in nature.
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