The Indian rupee came under renewed pressure on Tuesday, September 29, slipping past the ₹96-per-dollar mark before recovering most of its losses by the end of the session.
The rupee opened at ₹96.03 against the US dollar and weakened to an intraday low of ₹96.15, its lowest level in about two months. The currency later recovered and settled provisionally at ₹95.95 per dollar, up two paise from Monday’s close of ₹95.97.
The move came as crude oil prices remained elevated amid continued uncertainty over energy supplies from the Middle East. Brent crude had climbed above $107 a barrel earlier in the day, adding pressure on India’s currency because the country remains heavily dependent on imported crude oil.
Higher oil prices can widen India’s import bill and increase demand for US dollars from oil companies and other importers. This can put additional pressure on the rupee, particularly when global investors are already favouring the US currency.
The rupee’s decline was also linked to stronger US Treasury yields and a firm dollar. The US 10-year Treasury yield had moved to around 5.2%, while the dollar index was trading near a two-month high. Higher US yields can make dollar-denominated assets more attractive to global investors and reduce demand for emerging-market currencies such as the rupee.
Foreign portfolio outflows added another layer of pressure. Foreign investors have withdrawn around $3.7 billion from Indian equities and bonds in September, according to Reuters, as elevated oil prices and global risk concerns weighed on investor sentiment.
Data on Monday showed that foreign institutional investors sold equities worth ₹5,353.22 crore, adding to the pressure on domestic financial markets.
The Reserve Bank of India was also in focus during Tuesday’s trading session. Market participants said the central bank was likely active in the foreign exchange market as the rupee approached and moved beyond the psychologically important ₹96 level.
State-run banks were seen offering dollars, which traders told Reuters was likely on behalf of the RBI. The intervention helped the rupee move back from its intraday low and finish close to the ₹96 mark.
The RBI has been using a combination of tools to manage currency and liquidity conditions. Reuters reported that the central bank’s recent foreign-exchange operations have withdrawn nearly $20 billion of excess rupee liquidity from the banking system through dollar-rupee swaps, spot dollar sales, bond sales and other measures.
The central bank’s actions come as the rupee faces pressure from several directions at the same time. Apart from crude oil and foreign outflows, expectations of tighter US monetary policy have strengthened the dollar.
Markets are increasingly pricing in the possibility of another US Federal Reserve rate hike in October. A higher US interest-rate environment can encourage investors to move funds towards dollar assets, creating additional pressure on emerging-market currencies.
Despite the external pressure, there are some domestic factors providing support to the rupee. India’s industrial output grew 8% in August, according to data cited by currency analysts. Stronger domestic economic activity can help offset some of the pressure created by global market conditions.
Analysts are closely watching the ₹96 level because a sustained move above it could signal further weakness in the near term. Anindya Banerjee, head of commodity and currency research at Kotak Securities, said the rupee could move towards ₹96.50, while ₹95.50 remains an important support level.
The immediate direction of the Indian rupee is likely to depend heavily on crude oil prices, movements in US Treasury yields, foreign portfolio flows and developments around Middle East energy supplies.
A sustained easing in oil prices could reduce pressure on India’s import bill and support the rupee. On the other hand, another sharp rise in crude, continued foreign selling or a stronger US dollar could keep the currency under pressure.
Tuesday’s session therefore highlighted the challenge facing the rupee: while RBI intervention helped limit the decline, global factors continued to keep the Indian currency close to the ₹96-per-dollar threshold.
With crude prices still elevated and global markets focused on US interest rates and Middle East developments, currency traders are likely to keep a close watch on the rupee’s next move.
