Robust forex inflows lift rupee as lower crude prices boost sentiment

The rupee recovered from a five-session decline as easing crude oil prices and stronger-than-expected foreign exchange inflows under RBI measures supported sentiment

The rupee appreciated on Tuesday due to lower crude prices following hope of diplomacy between Iran and US, while stronger foreign exchange inflows under the Reserve Bank of India’s (RBI’s) recent measures to bolster the country’s foreign exchange reserves also supported the Indian unit.

 

The domestic currency settled at 96.24 against the US dollar, compared with its previous close of 96.45, after touching an intraday high of 96.13. Despite the recovery, it remains down more than 10 per cent from a year ago and is the worst-performing major Asian currency over the period.

 

Market participants said the decline in crude oil prices, following reports of diplomatic efforts between the US and Iran, improved sentiment, while the RBI’s intermittent dollar sales helped cap losses. Demand for the greenback from oil-marketing companies and other importers, however, continued to limit the rupee’s gains. International crude prices also hardened during the latter part of the day.

 

 

“The key reason behind the rupee’s appreciation was fall in crude oil prices, and RBI’s intervention in morning,” said a dealer at a state-owned bank.

 

Supporting sentiment, the RBI on Tuesday said its measures announced in June to attract foreign capital had mobilised $20.72 billion between June 8 and July 17. The update marked the first official disclosure of inflows under the package, which included a concessional swap window for FCNR (B) deposits and external commercial borrowings, relaxation in reserve requirements, and tax exemptions on select foreign investments in government securities. Of the total inflows, $17.4 billion came through FCNR (B) deposits.

 

Market participants will now watch whether the RBI uses the additional foreign exchange buffers to step up intervention as the rupee trades near record lows. The local currency hit a record closing low of 96.83 on May 20.

 

“Encouraging FCNR flow data released by the RBI boosted sentiment and drove rupee appreciation. Better-than-expected capital inflows, combined with steady crude prices and a stable dollar, offered much-needed support to the currency. Technically, the rupee is trading with key support at 95.80 and resistance at 96.50,” said Dilip Parmar, senior research analyst, HDFC Securities.

 

Asian currencies traded in a narrow range on Tuesday as investors monitored developments in West Asia and awaited earnings from major US technology companies for cues on global risk sentiment. The rupee, which has depreciated 1.64 per cent in July, is the worst-performing Asian currency after the Taiwan dollar.

 

The foreign inflows have also provided comfort on the balance of payments front, which has been in deficit for the past two financial years.

 

“The current account position in Q1FY27 appears quite manageable, with the first two months posting a small surplus. We estimate the Q1FY27 current account surplus at around $7 billion,” BoFA Securities said in a note.

 

“While foreign exchange reserves have been declining recently, we believe this largely reflects valuation losses due to falling gold prices. Overall, we expect the balance of payments to end in a small surplus,” the note added.