The Indian rupee (INR) fell 0.42 per cent against the US dollar (USD) on Tuesday, closing at 95.96. This marks its fifth straight day of losses and its sharpest one-day decline since July 14. The currency was dragged down by rising oil prices and surging global bond yields ahead of the US Federal Reserve’s policy decision.
The domestic currency closed at 95.96 per dollar, compared with 95.55 in the previous session. Market participants said the Reserve Bank of India (RBI) was seen intervening through state-run banks around the 95.95 level. Dollar sales by the central bank helped limit the rupee’s decline amid elevated oil prices and strong dollar demand.
Forex and money markets were closed on Monday on account of Ganesh Chaturthi.
“The Indian rupee extended its losses for the fifth consecutive session, dragged down by a persistent surge in global bond yields and rising crude oil prices amid ongoing supply disruptions. Heightened risk aversion ahead of the critical FOMC (Federal Open Market Committee) rate decision further weighed on Asian currencies, including the domestic rupee,” said Dilip Parmar, research analyst at HDFC Securities. “The RBI was seen protecting the 95.95 level,” Parmar said, adding the USD/INR pair has resistance at 96.30, with support at 95.45, favouring dollar bulls.
“The rupee fell to a 45-day low as US yields, India yields, and oil prices remained on the upside, while equity weakness and dollar demand from oil companies and FPIs (foreign portfolio investors) kept the rupee well offered,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
The rupee’s decline came despite India’s merchandise trade deficit narrowing to $26.86 billion in August from $31.98 billion in July. Exports grew 26.12 per cent year-on-year (Y-o-Y), while imports rose 14.1 per cent to $72.67 billion.
Global bond yields remained another pressure point. The US 10-year Treasury yield crossed 5 per cent, while the Indian 10-year government bond yield rose to around 7.09 per cent before settling at 7.07 per cent. The rise in the domestic benchmark yield tracked the upward movement in US Treasury yields, as markets assessed the impact of higher oil prices on inflation and interest rates.
“The rupee is under pressure from higher oil prices and US yields, with the 10-year Treasury yield crossing 5 per cent. Dollar demand remains strong and the bias is likely to stay negative for the rupee ahead of the Fed decision,” said a forex trader at a public sector bank.
Higher oil prices have also strengthened expectations of tighter monetary policy in India, while the rise in global yields has added to pressure on domestic borrowing costs.
Markets are now awaiting the US Fed’s policy decision on Wednesday. The dollar index was around 99.64, while Asian currencies also weakened amid broader risk aversion.
The RBI’s announcement of open market operation (OMO) sales of ₹1 trillion of government securities in three tranches also comes against the backdrop of elevated liquidity in the banking system. The first auction, worth ₹50,000 crore, is scheduled for September 16, followed by two auctions of ₹25,000 crore each. The banking system’s liquidity surplus stood at ₹10.7 trillion following large foreign-currency inflows under the FCNR(B) mobilisation scheme.
