Rupee falls for third straight session, ends at 95.19 as oil prices and importer demand weigh

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The Indian rupee closed back above the 95-per-dollar mark at 95.19 on October 26, declining for the third consecutive session as elevated crude oil prices, month-end dollar demand from importers and softer Asian currencies weighed on the domestic unit. The currency weakened by 25 paise from its previous close of 94.94 per dollar, said forex traders

The decline follows a sharp appreciation after the Reserve Bank of India announced measures to curb speculative activity in the foreign exchange market earlier this month. The rupee had strengthened from around 96.60-96.70 per dollar to 94.47 on October 21, gaining approximately 2.2 percent before the latest three-session losing streak.

The currency remained volatile during the day, moving between 94.9050 and 95.2650 per dollar. It initially strengthened before reversing course as dollar demand picked up. Brent crude prices, which remained elevated near $115 per barrel, added to pressure on the rupee by raising concerns over India's oil import bill and imported inflation.

“The rupee traded weak, declining around 27.5 paise to 95.18, as the Dollar Index remained firm near 101.70 and elevated crude oil prices continued to weigh on sentiment,” said Jateen Trivedi, vice-president and research analyst, commodity and currency, LKP Securities.

“Focus this week will remain on the Fed’s policy decision, with market participants assessing the possibility of a rate hike amid persistent inflation concerns. Fed Chair Kevin Warsh’s policy guidance and forward commentary will be closely watched for signals on the future rate trajectory,” he said.

“The rupee is likely to remain sensitive to dollar movements, crude oil and broader commodity prices,” Trivedi added.

Importer demand, month-end flows weigh

Traders said month-end dollar demand from importers added to the pressure on the rupee. Purchases by oil companies, along with dollar demand linked to foreign portfolio investor outflows, also kept the greenback well bid.

The rupee also saw diminishing support from foreign inflows associated with the Jio Platforms initial public offering, while reduced dollar-selling intervention by the RBI left the currency more exposed to underlying market demand, according to market participants.

Anil Kumar Bhansali said the rupee could remain under pressure as dollar demand from importers persists, with continued outflows linked to Jio Platforms and dollar purchases by SBI for oil payments adding to demand for the US currency.

“We expect the outflows related to Jio to continue, while normal buying by SBI for oil and FPIs for outflows will keep the dollar well bid tomorrow,” he said.

Bhansali expects the rupee to trade in a range of 95.00-95.50 per dollar in the next session. He also noted that short-term forward premiums edged lower during the day, while the one-year premium declined to 4.05 percent.

Dilip Parmar, research analyst at HDFC Securities, said the rupee extended its decline for a third straight session, weighed down by softer Asian currencies and firmer domestic bond yields.

“With three major central bank decisions on deck this week, volatility is likely to stay elevated,” Parmar said. He added that spot USD/INR faces a near-term cap at 95.80, while 94.95 remains a key support level.

Dollar steady ahead of central bank decisions

The US Dollar Index was around 101.81, recovering from levels near 101.64 earlier in Asian trading. The dollar's movement came despite a decline in US Treasury yields, with the 10-year yield slipping below 5 percent, while currency markets positioned for a busy week of central bank decisions.

The Federal Reserve, European Central Bank and Bank of Japan are scheduled to announce their policy decisions this week. While markets broadly expect rates to remain unchanged, investors will watch the Fed's guidance for signals on the future interest-rate path.

Brent crude December futures traded near $114.93 per barrel, down around 1.8 percent from Friday's settlement of $116.72, after touching an intraday high of $117.41. The decline followed a rally of more than 6 percent last week amid concerns over disruptions to Middle East oil supplies.

Elevated oil prices and persistent importer demand are likely to keep the rupee vulnerable in the near term, with movements in the dollar, crude prices and foreign fund flows expected to determine the currency's next direction.