Rupee gains for fifth day as weak dollar, lower crude lift sentiment
The rupee posted its strongest weekly gain since March as a weaker dollar, lower crude oil prices, foreign inflows and likely RBI intervention supported the domestic currency
 "Rupee gains for fifth day as weak dollar, lower crude lift sentiment")
The rupee appreciated sharply on Friday, tracking a decline in the dollar index and crude oil prices, while dollar sales by state-owned banks, likely on behalf of the Reserve Bank of India (RBI), provided additional support to the domestic currency, dealers said.
The rupee settled at 95.39 against the US dollar, compared with the previous close of 95.68, extending its gains for a fifth consecutive session. It touched a three-week high of 95.25 in the day before paring some gains amid dollar demand. The domestic currency gained around 1 per cent in the week, marking its strongest weekly performance since March.
Meanwhile, data released by RBI on Friday showed its outstanding net short dollar position in the forward market narrowed to $103.33 billion at the end of June from $106.66 billion at the end of May.
Market participants said the RBI intervened throughout the week, with state-owned banks aggressively selling dollars during periods of thin market liquidity to prevent excessive depreciation of the rupee.
“Crude was softer and the dollar index was down, which led to the rally today (Friday),” said a dealer at a state-owned bank. “The RBI intervened throughout the week, which kept the rupee afloat,” the dealer added. Dealers said foreign capital inflows, including those related to MSCI rebalancing, along with gains in domestic equities, also supported the currency.
Despite Friday’s rally, the rupee ended July about 0.76 per cent weaker against the greenback, as elevated crude oil prices weighed on sentiment during most of the month. In June, the currency had appreciated 0.36 per cent.
Most Asian currencies strengthened on Friday, with traders also tracking movements in the Japanese yen, South Korean won and Chinese yuan. The offshore Chinese yuan strengthened past 6.75 per dollar, while the South Korean won touched an intraday high of around 1,429.
Brent crude fell to $87.17 a barrel from $91.38 in the previous session, easing pressure on the rupee.
The Dollar Index extended its decline to around 100 on Friday, its lowest level in nearly 15 weeks, from 100.79 in the previous session. The index measures the greenback’s strength against a basket of six major currencies.
The US currency remained under pressure after the Federal Reserve's latest policy decision reinforced expectations that US interest rates were near their peak, while weaker-than-expected US economic data prompted investors to trim long-dollar positions.
Brent crude fell to $87.17 a barrel from $91.38 in the previous session, easing pressure on the rupee. Dealers said demand for dollars from oil companies emerged at lower levels as they sought to hedge import payments, limiting further gains in the domestic currency.
“A softer greenback and lower oil prices gave the Indian rupee a strong push today, allowing it to appreciate alongside other Asian currencies. The dollar index lost ground overnight after Japan's central bank stepped into the currency markets, while lower oil prices provided additional support. Backed by capital inflows from foreign investors and a broader risk-on rally, the rupee remains on firm ground. From a technical perspective, the spot rupee has immediate support at 94.85, while any further upside could test resistance near 95.60,” said Dilip Parmar, senior research analyst at HDFC Securities.
Geopolitical developments also remained on investors' radar, with markets tracking the fragile ceasefire and talks involving Oman and Iran over shipping through the Strait of Hormuz.
Dealers expect the rupee to trade in the 95-96 per dollar range on Monday. The one-month forward premium eased to 3.02 per cent, while the one-year premium edged up to 2.90 per cent.
The rupee has depreciated 0.61 per cent in the current financial year and 5.78 per cent in the current calendar year.
RBI data showed short dollar positions maturing in less than one year declined to $40.33 billion at the end of June from $50.59 billion a month earlier. However, positions with maturities of more than one year rose by about $8 billion to $64.21 billion.
Of the RBI's $103.33 billion net short dollar position, $10.18 billion was in one-month contracts, $5.73 billion in one-to-three-month contracts, $24.42 billion in contracts maturing between three months and one year, and the remaining $64.21 billion in contracts with maturities exceeding one year.