The rupee opened at 95.05 per dollar in the interbank foreign exchange market in Mumbai on October 14. It subsequently strengthened to 94.92, marking a gain of 44 paise compared with its previous closing level. On Tuesday, the rupee had already risen by 42 paise to close at 95.36 per dollar.
Foreign exchange traders said recent measures introduced by the Reserve Bank of India to stabilise the rupee had provided support to the currency market. The central bank's steps are aimed at reducing immediate demand for dollars and curbing speculative positions against the rupee.
To ease pressure on the domestic currency, the RBI has introduced several measures, including a special arrangement to shift oil marketing companies' dollar requirements away from the spot market and tighter regulations governing foreign currency derivatives trading. The central bank has also directed banks to maintain a 20 per cent reserve against purchases exceeding million. These measures are intended to limit dollar demand in the market and restrict speculative bets against the rupee.
Foreign exchange traders believe that if the rupee manages to remain below the 95-per-dollar level, it could strengthen further, with 94.50 emerging as the next important level to watch. However, this remains a market expectation rather than a fixed target.
Finance Minister Nirmala Sitharaman said on Tuesday that the rupee had experienced a significant decline over the past year and a half. She also highlighted the major role played by external challenges in the currency's volatility. While the RBI is focused on preventing excessive fluctuations in the rupee, the government is concentrating on maintaining the strength of the domestic economy.
The US dollar index declined by 0.06 per cent to 102.11 on Wednesday. The index measures the dollar's strength against a basket of six major currencies. However, the decline in the dollar index was accompanied by a rise in crude oil prices, creating another factor for the currency market to monitor.
Brent crude futures increased by 0.57 per cent to $106.29 per barrel. Higher crude oil prices are significant for India because the country imports a large share of its oil requirements. An increase in oil prices can raise the amount of dollars needed to pay for imports, potentially adding pressure on the rupee. Consequently, global market movements will remain important despite the support provided by the RBI's recent measures.
While the rupee gained ground against the dollar, domestic equity markets traded lower during the opening session. The Sensex fell 32.96 points to 73,000.82, while the Nifty declined 32.65 points to 22,688.75.
Exchange data showed that foreign institutional investors (FIIs) recorded net sales worth Rs 1,305.13 crore in the Indian stock market on Tuesday. The contrasting movements highlighted that the rupee's recovery and the performance of domestic equities were not moving in tandem.
The 95-per-dollar mark remains a key level for the rupee. Although the RBI's latest measures have provided initial support, the currency's ability to sustain its recovery will also depend on dollar demand and broader global market conditions. The coming trading sessions will indicate whether the rupee can extend its gains or whether external pressures will limit its recovery.
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