The Indian rupee opened at 94.93 against the US dollar on Monday, October 26. High crude oil prices and fading foreign fund flows weighed on the currency. Traders said, "the flow support seen last week was unlikely to recur." The rupee now faces risks of slipping past the 95 mark.
The Indian rupee opened marginally weaker against the US dollar on Monday, October 26, at 94.93, compared with Friday’s (October 23's) close of 94.94, a depreciation of 1 paisa, as elevated crude oil prices and the likely absence of last week’s supportive foreign fund flows weighed on sentiment.
The domestic currency is at risk of slipping past the psychologically important 95-per-dollar mark, with Brent crude trading near $115 a barrel and the support from inflows linked to the Jio Platforms initial public offering (IPO) expected to fade, according to currency market participants.
The rupee traded in a range of 94.32 to 94.97 last week, moving towards the stronger end of the range on inflows associated with the Jio Platforms IPO and the unwinding of positions.
The IPO allotment is scheduled for Monday (October 26), while the shares are set to list on the stock exchanges on Wednesday (October 28). Strong foreign institutional investor demand for the issue is likely to have supported the rupee through associated flows into the spot market, bankers said.
However, a currency trader at a private sector bank said the flow support seen last week was unlikely to recur, leaving the rupee more exposed to downside risks. The trader added that intervention by the Reserve Bank of India (RBI) remained a key factor to watch.
Why crude oil prices matter for the rupee
Brent crude rose more than 6% last week to a six-month high, with attacks on Saudi Arabia keeping concerns over global oil supplies in focus.
For India, which depends heavily on imported crude oil, higher oil prices can increase the country's import bill and demand for dollars, putting pressure on the rupee and the external balance.
Although dollar demand from oil refiners is not currently a direct market driver because the RBI's special window allows them to meet foreign exchange requirements outside the usual market, elevated crude prices remain a concern for the currency.
Higher oil prices can also increase hedging demand and weigh on foreign portfolio flows, adding to pressure on the rupee.
US Federal Reserve decision in focus
Beyond crude oil, markets will track the US Federal Reserve's policy decision this week for cues on the outlook for interest rates.
A pause in rate changes is widely expected, but investors will look for signals on the future policy path, particularly whether another rate hike could be on the table in December.
The Fed's guidance could influence dollar movements and capital flows into emerging markets, including India, and add another factor for the rupee to navigate this week.