Rupee Rebounds to ₹85.87 Amid Softer Oil, Cautious Market Sentiment

The Indian rupee opened slightly higher at ₹85.87 against the US dollar on Wednesday, supported by a retreat in global crude oil prices. This minor appreciation comes after two consecutive sessions of weakness, which had pushed the domestic currency to fresh lows amid persistent foreign outflows and elevated commodity prices.

At the interbank foreign exchange market, the rupee opened at ₹85.87, improving from Tuesday’s close of ₹85.88. The modest uptick was attributed to weaker oil benchmarks, which eased concerns over India’s import bill. Brent crude futures were last seen trading below $66 per barrel, offering a breather to the currency.

Crude Oil as a Key Driver

Crude oil prices play a pivotal role in shaping the rupee's movement, given India’s status as a major oil importer. A decline in global crude benchmarks reduces pressure on the country’s current account and inflation, providing some support to the rupee.

However, analysts caution that the outlook remains uncertain amid mixed global cues. Ongoing geopolitical risks, including tensions in the Middle East and persistent concerns over demand recovery in China, continue to influence oil price volatility and, in turn, the rupee’s near-term trajectory.

Foreign Fund Flows and Dollar Index Movement

Foreign institutional investor (FII) activity has remained negative in recent sessions, with continued outflows from Indian equities exerting pressure on the rupee. Additionally, the dollar index has held firm near the 104 mark, limiting any sharp appreciation in emerging market currencies, including the rupee.

The US Federal Reserve's rate outlook remains a key macro factor. Any signals of prolonged monetary tightening could weigh further on the rupee by enhancing the yield appeal of dollar-denominated assets.

RBI’s Potential Intervention

Market participants are also closely watching the Reserve Bank of India (RBI) for any signs of intervention. The central bank has historically intervened in the spot and forward markets to contain excessive volatility and ensure orderly currency movement.

While the rupee’s movement has largely tracked global cues and commodity prices, RBI’s presence provides a stabilising effect, especially during periods of heightened turbulence in global markets.

Outlook

The rupee’s near-term direction will continue to hinge on global crude trends, FII flows, and movements in the dollar index. While the softening in oil prices offers immediate relief, sustained gains may remain capped unless accompanied by improved capital inflows and a weaker dollar.

For now, traders anticipate a narrow range of movement, with key support pegged at ₹85.95 and resistance near ₹85.75. Market sentiment is expected to remain cautious ahead of key global economic data and central bank commentary later in the week.

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