Rupee firms on falling oil prices, FPI inflows

The Indian rupee gained for the fifth straight session, buoyed by crude oil prices falling below $100 per barrel, strong foreign inflows, and a weaker US dollar, reaching its highest level in two weeks. Market experts cite sustained FPI inflows and lower oil prices as key drivers for the rupee's near-term stability amid RBI interventions.

Over the week, it gained 0.45%. In the calendar year so far, the rupee has declined 5.12%.

Oil prices were trading $85.76 per barrel, the lowest level in two months, amid expectations of a possible de-escalation in the Iran conflict. Vice President JD Vance attributed the Republicans' electoral setback to the war, fuelling expectations that mounting domestic political pressure could push the Trump administration towards de-escalation.

"The rupee drew support from strong foreign portfolio investor (FPI) inflows and a moderation in crude oil prices, which eased pressure on the country's import bill and reduced dollar demand from oil importers. These factors helped improve sentiment towards the domestic currency," said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors LLP.

FPIs bought shares worth $1.5 billion on Thursday and around $4.3 billion (around Rs 40,000 crore) over the 13 trading sessions, according to stock exchange data. Currency analysts said that FPI inflows will remain key for the rupee's trajectory going ahead.

Market participants said the rupee also benefited from a decline in US Treasury yields and a weaker dollar.

Bhansali said that the rupee's current levels may be difficult to sustain over the longer term, given the RBI's sizeable forward positions of over $200 billion that could create pressure on the currency. "However, continued capital inflows may provide near-term support, keeping the rupee range-bound in the 94-95.50 band."

Amit Pabari, managing director, CR Forex, said that the global environment is turning more favourable for the rupee, with both US bond yields and the dollar losing ground. "Meanwhile, the RBI's currency-related curbs continue to support the rupee by curbing import-driven dollar demand and improving the currency's near-term outlook. I expect the rupee to retain its positive bias, with the 94.00-94.20 range providing support and 95.30-95.50 acting as a strong resistance zone."

The rupee's ability to sustain its current levels will depend on lower crude prices, continued foreign inflows and the RBI's ability to contain underlying dollar demand, said market participants.