The rupee steadied on Thursday after plunging to a record low in the previous session, but pressure on the currency is far from over.
The ongoing war in West Asia has rattled global oil markets, strengthened the US dollar and unsettled investors, pushing the rupee to its weakest level on record.
The currency slipped past Rs 92 per dollar on Wednesday, its lowest level ever, before stabilising on Thursday following suspected intervention by the Reserve Bank of India (RBI).
As of 10:37 am, the rupee was trading at Rs 91.61 against the dollar, recovering part of the steep losses recorded earlier in the week.
The rebound has brought some immediate relief to currency markets, but analysts say the underlying pressures on the rupee have not disappeared.
CRUDE OIL VOLATILITY HITS RUPEE
Financial markets tend to react quickly to geopolitical shocks, and the war in West Asia has done exactly that.
The Middle East sits at the heart of global oil production, and even the possibility of supply disruptions can send prices swinging sharply. In recent days, fears that the conflict could affect energy flows from the region have pushed crude prices higher.
Oil prices have jumped nearly 10% to the $76 to $78 per barrel range, reflecting rising uncertainty in global energy markets.
For India, which imports the vast majority of the oil it consumes, such spikes can quickly ripple through the economy.
Because crude oil is traded internationally in US dollars, Indian refiners must buy dollars to pay for those imports. When oil prices rise, the demand for dollars increases, which typically pushes the rupee lower.
In short, higher oil prices often translate directly into pressure on the rupee.
WHY OIL PRICES MATTER SO MUCH FOR THE RUPEE
India imports roughly 85% of its crude oil, making the economy highly sensitive to movements in global energy prices.
When oil becomes more expensive, India’s overall spending on imports rises. This increases the country’s import bill, or the total amount of money it spends buying goods from abroad.
Higher oil prices can also widen India’s trade deficit, which happens when a country imports more goods than it exports. When more dollars leave the country than enter it, the domestic currency usually weakens.
According to Jateen Trivedi, Vice President, Research Analyst for Commodity and Currency at LKP Securities, the recent surge in crude prices has been a major factor behind the rupee’s decline.
He said the rupee weakened by about 0.55% to trade near 92.10 as escalating geopolitical tensions in West Asia and increasing US involvement pushed oil prices higher.
The spike in crude prices has increased concerns about India’s import costs and the broader impact on the country’s external balance.
STRONG DOLLAR IS ADDING TO THE PRESSURE
Oil is not the only factor weighing on the rupee. The US dollar has also strengthened globally as investors move money into safer assets during periods of geopolitical uncertainty.
When tensions rise in global markets, investors often shift funds away from emerging markets and into assets they consider more stable, such as US government bonds or the dollar itself.
This shift, often described as a risk-off environment, tends to strengthen the dollar while weakening many emerging market currencies, including the rupee.
In recent days, this global move toward safer assets has added to the downward pressure on the Indian currency.
FII OUTFLOWS ALSO HURT THE RUPEE
Selling by foreign investors has also played a role in the rupee’s recent weakness.
Foreign portfolio investors, often referred to as FPIs, are overseas funds that invest in Indian stocks and bonds. When they sell their holdings and move money out of the country, they convert rupees into dollars before transferring the funds abroad.
That conversion increases demand for the US currency in the foreign exchange market, which can push the rupee lower.
Such outflows tend to accelerate when global uncertainty rises.
WHY DID RUPEE STABILISE TODAY?
Despite the pressure, the rupee managed to stabilise on Thursday after the Reserve Bank of India stepped into the market.
Central banks can intervene in currency markets by selling dollars from their foreign exchange reserves and buying rupees. This increases the supply of dollars in the market and helps slow the currency’s decline.
These actions do not permanently reverse a trend, but they can calm markets and prevent sharp swings.
The rupee’s recovery to around Rs 91.61 per dollar suggests the RBI’s intervention helped steady the market, at least for now.
WHAT TECHNICAL SIGNALS ARE SHOWING
Market analysts say the broader trend still favours the dollar against the rupee.
According to Ponmudi R, Chief Executive Officer of Enrich Money, the USD/INR pair, which measures how many rupees are needed to buy one US dollar, continues to show strength.
He noted that the exchange rate has moved above 92, indicating continued dollar strength against the Indian currency.
Ponmudi said the outlook remains positive for the dollar as long as the exchange rate stays above the 91.80 to 92.00 range, which traders view as an important support level.
If the rate holds above 92.20, the dollar could climb further toward 92.50 to 92.80, potentially leading to new highs if global uncertainty continues and oil-driven demand for dollars remains strong.
WHAT NEXT FOR THE RUPEE?
Trivedi expects the rupee to trade within a 91.50 to 92.75 range in the near term, with volatility likely to remain elevated.
In financial markets, volatility refers to how sharply prices move over short periods of time. High volatility means the currency can swing quickly in either direction.
Much will depend on how the conflict in West Asia evolves and how oil prices respond in the coming weeks.
For now, analysts say the rupee’s stabilisation looks more like a pause than a full recovery. As long as oil prices remain volatile and geopolitical tensions stay high, the Indian currency is likely to remain under pressure.
