On Monday, the Indian rupee exhibited limited movement in a cautious trading session, despite escalating geopolitical tensions. Traders, apprehensive of potential dollar-selling interventions by the Reserve Bank of India (RBI) if the local currency approached its all-time low, kept the rupee stable.
The rupee closed slightly weaker at 83.2625 against the U.S. dollar, compared to the previous session’s closing rate of 83.2450. Traders noted that a substantial increase in crude oil prices could exert pressure on the rupee, possibly prompting the RBI to allow the rupee to depreciate further.
In a broader context, Asian currencies experienced a decline, primarily due to the strengthening of the U.S. dollar. This surge in the greenback was driven by a flight to safe-haven assets in response to ongoing military conflicts in the Middle East. The Thai baht recorded the most significant decline, falling by nearly 0.6% during the day.
The dollar index (DXY) rose to 106.5, and Brent crude oil futures also climbed to $86.84.
The rupee’s trading activity remained muted on Monday due to reduced foreign inflows associated with public holidays in Japan, Korea, and the United States. While U.S. stock markets operated on Monday, the bond market remained closed. A foreign exchange trader at a state-run bank anticipates potential volatility on the horizon, particularly if crude oil prices surge significantly due to geopolitical tensions, possibly pushing the rupee below 83.30.
While the rupee has faced pressure from elevated U.S. Treasury yields in recent weeks, the RBI’s interventions have prevented it from reaching its record low level, as noted by traders. The rupee’s all-time low was recorded at 83.29 in October 2022.
For the time being, the rupee is expected to maintain its range-bound trading pattern as the RBI continues to defend the domestic currency. According to Dilip Parmar, Head of Foreign Exchange Research at HDFC Securities, investors are now eagerly awaiting consumer price inflation data from both the U.S. and India, scheduled for release this week.
In summary, the Indian rupee held steady in a day of limited movement, cautiously navigating geopolitical uncertainties and the potential for RBI interventions to maintain stability. Crude oil price developments and forthcoming inflation data from India and the U.S. are expected to influence the rupee’s trajectory in the coming days.