Indian Rupee ticks up on possible RBI’s intervention
- The Indian Rupee regains ground against the US Dollar as the RBI intervenes to support the domestic currency.
- Surging oil prices will likely keep the Indian Rupee under pressure.
- FIIs turned out to be net sellers on Wednesday.
The Indian Rupee (INR) opens marginally higher against the US Dollar (USD) on Thursday on possible Reserve Bank of India (RBI) intervention in spot and non-deliverable forwards (NDFs) markets to support the currency. The USD/INR pair edges down to near 96.47, but is still close to its two-month high of 96.75 posted on Monday.
According to a Reuters report, the RBI likely intervened in the foreign exchange market on Thursday to limit the INR's losses as a relentless rise in oil prices deepened the South Asian unit's drift back towards record lows.
The Indian central bank is seen intervening several times in the past few weeks, as the Asian currency has underperformed significantly due to higher oil prices and the consistent outflow of foreign funds from the Indian stock market.
Oil prices will likely keep INR’s upside limited
The recovery move in the Indian Rupee on Thursday will likely prove to be short-lived as intensified Middle East energy supply risks are fuelling oil prices.
In the opening trade, the MCX Crude Oil contract expiring on August 19 trades 1.75% higher at around Rs. 8,570, the highest level seen in over six weeks.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high oil price environment.
Earlier in the day, Yemen’s Iran-aligned Houthis carried out missile and drone strikes on two Saudi oil tankers in the Red Sea on Wednesday – naming one as the Encelia – as part of a maritime blockade on the kingdom amid the US-Iran war, The Guardian reported.
FIIs remain net sellers on Wednesday
There seems to be a sense of caution among Foreign Institutional Investors (FIIs) toward the Indian stock market amid surging energy prices. On Wednesday, FIIs turned out to be net sellers, offloading their stake worth Rs. 819.20 crore.
So far this month, foreign investors have remained overall net sellers and have reduced their stake worth Rs. 4836.95 crore.
Technical Analysis: USD/INR stays above 20-day EMA
USD/INR trades marginally lower at around 96.53 in the opening session, but holds a bullish near-term bias as it trades above the 20-period exponential moving average (EMA), which is at 95.8764.
The Relative Strength Index (RSI) at 64.10 stays in positive territory but below overbought levels, suggesting firm upward momentum without yet signaling exhaustion.
On the downside, immediate support is located at the 20-period EMA at 95.88, which reinforces the broader constructive structure while it remains intact. Looking up, the all-time high at around 97.10 is the key resistance level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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