Rupee gains 11 paise to 95.17 against US dollar, but high crude prices threaten recovery

New Delhi: The rupee strengthened by 11 paise to 95.17 against the US dollar in early trade on Thursday, supported by a marginal decline in the American currency following the US Federal Reserve's decision to leave interest rates unchanged. However, persistently high crude oil prices and elevated US Treasury yields continued to pose risks to the domestic currency.

At the interbank foreign exchange market, the rupee opened at 95.20 against the greenback before strengthening to 95.17, compared with Wednesday's closing level of 95.28.

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The modest recovery came after the US Federal Reserve maintained its benchmark interest rate in the 3.75–4.00 percent range, broadly in line with market expectations. The decision triggered a slight weakening of the dollar, providing some relief to emerging-market currencies.

Dollar weakens after Fed decision

The dollar index, which measures the greenback against a basket of six major currencies, slipped 0.04 percent to 102.15.

However, the Fed's decision offered limited clarity on the future direction of US interest rates, leaving currency markets sensitive to upcoming inflation and economic data.

Stronger-than-expected US inflation could reinforce expectations of further monetary tightening, potentially strengthening the dollar and putting renewed pressure on emerging-market currencies, including the rupee.

Crude oil remains a major concern

Despite Thursday's appreciation, the rupee continued to face significant pressure from elevated global energy prices.

Brent crude futures declined 1.03 percent to USD 114.13 per barrel, but prices remained high enough to raise concerns over India's import bill, current account deficit and inflation outlook.

As one of the world's largest crude oil importers, India remains particularly vulnerable to sustained increases in international oil prices. Higher energy costs increase demand for dollars from domestic oil companies, potentially weakening the rupee further.

RBI support cushions downside

India's foreign exchange reserves of around USD 721 billion, improving portfolio investment flows and the Reserve Bank of India's presence in the currency market have helped contain volatility.

Anindya Banerjee, Head of Commodity and Currency Research at Kotak NEO, said the underlying risks continued to favour a gradual increase in the dollar-rupee exchange rate rather than a sudden currency disruption.

"We therefore see a gradual upward bias in USDINR within the range, rather than evidence of a disorderly move," Banerjee said.

A rising USD/INR exchange rate indicates a weakening rupee, suggesting that the latest appreciation may not necessarily mark a sustained reversal in the currency's broader trend.

Foreign inflows provide relief

Domestic equity markets also opened higher, providing additional support to market sentiment.

In the initial market snapshot, the BSE Sensex advanced 163.03 points to 73,409.06, while the NSE Nifty50 gained 40.40 points to 22,739.25.

Foreign institutional investors were net buyers of Indian equities worth Rs 871.83 crore on Wednesday, according to exchange data.

While foreign inflows can support demand for the rupee, their impact could be offset by rising oil-related dollar requirements and continued competition from higher-yielding US assets.

The immediate outlook for the domestic currency will depend on the direction of crude oil prices, US bond yields, foreign portfolio flows and the RBI's approach to managing exchange-rate volatility.

Market verification update

A check of newer market feeds shows that the early rupee recovery may have reversed. Investing.com's October 29 USD/INR data shows a reading around 95.33, indicating renewed weakness in the rupee, although the displayed feed time is not sufficient to establish an exact latest interbank quote.

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Reuters also identifies 95.25–95.30 as an important USD/INR resistance zone, with elevated crude prices and dollar demand continuing to influence trading. Reuters

Editorial recommendation: For publication as a current market update, the headline should be changed to “Rupee's early gains fade as dollar demand, high crude prices weigh on currency”, subject to confirmation from the latest interbank quote.

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