Rupee Opens at 94.93 Against Dollar as Oil Near $115 Threatens Recovery

The rupee opened at 94.93 against the dollar on Monday, compared with Friday’s closing level of 94.94, gaining 1 paisa at the start of the trading session. Despite the marginal improvement, the domestic currency remains vulnerable to slipping beyond the psychologically important 95-per-dollar mark.

Brent crude prices hovering near $115 a barrel and uncertainty over foreign investment flows are weighing on the rupee’s outlook. Investors are also preparing for the US Federal Reserve’s upcoming policy decision, which could influence the dollar’s movement and capital flows into emerging markets.

Last week, the rupee traded between 94.32 and 94.97 against the dollar, receiving support from inflows associated with the Jio Platforms IPO and the unwinding of currency positions. However, market participants expect this support to weaken as the IPO allotment process concludes on Monday, ahead of the company’s stock market listing on Wednesday.

The Jio Platforms IPO attracted strong demand from foreign institutional investors. Some of the money associated with these investments is believed to have entered the spot currency market, helping support the rupee during the previous week.

However, traders expect these supportive flows to diminish. A currency trader at a private sector bank told Reuters that last week’s supportive inflows were unlikely to recur, while elevated oil prices continued to weigh on market sentiment.

With this temporary support expected to weaken, the rupee could become more exposed to external pressures. Intervention by the Reserve Bank of India (RBI) remains an important factor in determining the currency’s near-term direction.

Crude oil remains a major concern for the domestic currency. Brent crude rose more than 6 per cent last week, reaching a six-month high near $115 a barrel. Concerns over possible supply disruptions following attacks on Saudi Arabia have added to uncertainty in global oil markets.

India imports a large share of its crude oil requirements. Rising oil prices increase the country’s import bill, potentially widening its trade deficit and putting additional pressure on the rupee.

Higher crude prices can also encourage businesses to hedge against currency fluctuations and weaken foreign portfolio investment sentiment, adding to the challenges facing the domestic currency.

Dollar demand from oil refiners is not currently a direct source of pressure in the usual market, as the RBI’s special window allows them to meet their foreign exchange requirements outside it. Nevertheless, elevated crude prices remain a broader concern for India’s external finances.

Alongside oil prices and foreign fund flows, investors will closely monitor the US Federal Reserve’s policy decision this week. Markets widely expect the US central bank to leave interest rates unchanged, but its guidance on the future policy path will remain in focus.

Investors will particularly look for indications of whether another rate hike could be possible in December. The Federal Reserve’s guidance could influence movements in the US dollar and capital flows into emerging markets such as India.

The rupee’s ability to sustain its recent recovery will therefore depend on how foreign investment flows evolve after the Jio Platforms IPO allotment, the trajectory of crude oil prices and the signals emerging from the US Federal Reserve’s policy decision.