The Indian rupee is expected to hold above the 96-per-dollar mark when trading opens on Tuesday, with sustained intervention by the Reserve Bank of India (RBI) and a decline in global oil prices helping the currency withstand the broader strength of the U.S. dollar.
Market participants expect the rupee to open flat or slightly stronger after it rallied 0.7% in the previous trading session to close at 95.91 per U.S. dollar. The advance marked a significant turnaround for the currency, which had appeared to be heading towards the 97-per-dollar level for the first time at Friday’s open.
The recovery was driven by decisive action from the RBI, which intervened to defend the 97-per-dollar level while lower crude oil prices provided additional support. The combination of these factors reversed market sentiment after the rupee had faced sustained downward pressure.
The central bank reinforced its efforts on Monday through further sales of U.S. dollars, triggering stop-losses on long-dollar positions and accelerating the rupee’s gains. As a result, the Indian currency climbed to its highest level in two weeks and recorded its largest single-day advance in around six weeks.
Traders indicated that the decline in oil prices alone would not have been sufficient to produce such a sharp recovery. Instead, they pointed to the RBI’s persistent intervention as the primary driver behind the change in market sentiment.
“The key factor has been the RBI’s intervention, which has been fairly persistent. That intervention is likely to keep speculators cautious, at least over the next few days,” a trader at a private-sector bank said.
Despite the rupee’s rebound, the broader international backdrop remained supportive of the U.S. dollar. The dollar edged higher against most Asian currencies, while the dollar index (.DXY) hovered near a one-month high, reflecting continued demand for the U.S. currency.
Investor attention is now focused on the U.S. Federal Reserve’s policy decision on Wednesday. Expectations that the central bank could still raise interest rates have lent support to the dollar, although financial markets continue to position largely for policymakers to leave rates unchanged.
According to the CME FedWatch Tool, traders are currently assigning roughly a one-in-three probability to an interest-rate increase, highlighting ongoing uncertainty over the Federal Reserve’s next move.
Meanwhile, lower energy prices continued to provide support for the rupee. Oil prices fell by 1% as market participants assessed a pause in U.S. strikes on Iran, raising hopes that the conflict could move towards a diplomatic resolution.
Brent crude declined 1.5% to $87.06 per barrel, extending the previous session’s sharp 8.7% fall. The sustained retreat in oil prices eased pressure on the Indian currency, although traders suggested that the RBI’s intervention remained the dominant factor behind the rupee’s recent recovery.
The interaction between domestic central bank action, developments in global energy markets and expectations surrounding U.S. monetary policy is likely to remain the key influence on the rupee in the coming days. For now, traders expect the RBI’s continued presence in the market to discourage speculative pressure while helping the currency maintain its recovery above the closely watched 96-per-dollar threshold.
