New Delhi: The Indian rupee appreciated 7 paise to 95.19 against the US dollar in early trade on Friday, supported by a weaker American currency and easing US Treasury yields. However, elevated crude oil prices and subdued Asian markets limited the domestic currency's gains.
At the interbank foreign exchange market, the rupee opened at 95.21 and strengthened to 95.19 against the dollar, compared with Thursday's closing level of 95.26.
The local currency had gained 2 paise in the previous session after trading within a narrow range.
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Forex traders said a sustained recovery in the rupee would depend on stronger capital inflows and an easing of India's oil import burden. The immediate trading range for the USD-INR pair is estimated at 94.75–95.75.
"The Indian rupee opened flat to positive on weak dollar and softening of US treasury yields. However, weak Asian markets and a surge in crude oil prices capped sharp gains. ECB and Bank of Japan kept interest rates unchanged," said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.
The dollar index, which measures the greenback against a basket of six major currencies, declined 0.27 percent to 101.75.
Meanwhile, Brent crude futures were quoted at USD 116.09 per barrel, down 1.05 percent. Despite the decline, oil prices remained elevated, posing risks to India's import bill and currency stability.
The Reserve Bank of India's role in managing currency volatility remains under scrutiny amid reports of substantial intervention in the foreign exchange market to support the rupee.
"We expect the RBI’s presence to remain important in keeping currency moves orderly," said Anindya Banerjee, Head of Commodity and Currency Research, Kotak NEO.
Banerjee identified developments in West Asia, the upcoming US midterm elections and American inflation and employment data as key factors likely to influence currency movements and the US Federal Reserve's December policy decisions.
In a significant policy observation, the International Monetary Fund (IMF) said on Thursday that allowing the rupee to adjust to external shocks should be India's preferred response, particularly during periods of elevated energy prices.
The comments come amid reports of aggressive RBI intervention to contain the rupee's depreciation.
"Our view is that the rupee should be the first line of defence in the face of these shocks. So, allowing the exchange rate to move freely to reflect the impact of these shocks is important to help the Indian economy adjust to the shocks," IMF Communications Director Julie Kozack has said.
The IMF's position highlights a key policy challenge for the RBI: balancing the need to prevent excessive currency volatility against allowing market forces to determine the rupee's value.
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Domestic equity markets opened higher, providing some support to sentiment. The BSE Sensex gained 138.77 points to 74,289.81, while the NSE Nifty advanced 38.95 points to 22,967.10.
However, foreign institutional investors remained net sellers, withdrawing Rs 943.60 crore from Indian equities on Thursday, according to exchange data.
With crude oil prices remaining elevated and geopolitical uncertainty continuing in West Asia, the rupee's near-term direction is likely to depend on global dollar movements, foreign capital flows and the RBI's approach to managing exchange rate volatility.
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