Key Takeaways
- The Indian rupee closed marginally higher at 95.59 per dollar.
- Oil prices, influenced by Iran’s offer to reopen the Strait of Hormuz, impacted the currency.
- Central bank interventions through bond sales and foreign exchange swaps managed liquidity.
The Indian rupee fluctuated throughout the day, ending the session marginally higher at 95.59 per dollar, up 0.2% from the previous close.
Traders noted that the currency's movement was heavily influenced by oil prices, which fell 1.5% to $98.8 per barrel.
A report suggested that Iran was willing to reopen the Strait of Hormuz if the US eased military pressure and lifted its blockade, which initially pushed oil prices higher.
However, the central bank's dollar sales by state-run banks helped limit the rupee's decline, keeping it within a narrow range.
A senior treasury official at a bank stated that traders kept their positions small with tight stop-losses, indicating cautious trading behavior.
The Reserve Bank of India (RBI) has been active in managing liquidity through bond sales and foreign exchange swaps, reducing the banking system's liquidity surplus by more than half.
The RBI's actions have also helped support the domestic currency, with the liquidity surplus generated by larger-than-expected inflows of $133 billion through the RBI's diaspora deposit scheme.
Traders expect the rupee's performance to be influenced by oil prices in the near term, with a fall below 96 seeming unlikely but potentially triggering fresh dollar buying.
Economists predict that the central bank's priorities will include managing liquidity, gradually lowering the sizeable forwards book, and supporting the domestic currency.
Oil will likely dominate the momentum and while a fall past 96 for the rupee seems unlikely, it could spur a fresh round of dollar buying if it occurs.
Radhika Rao, Senior economist at DBS
