Rupee opens 3 paise higher at 94.46 against US dollar

The Indian rupee opened 3 paise higher at ₹94.46 against the US dollar on Friday, 4 September, supported by dollar sales by the Reserve Bank of India (RBI) and strong inflows from one-off measures. However, rising crude oil prices remain a key challenge for the currency, Reuters reported.

The rupee has emerged as Asia’s second-best performing currency after the Korean won this week, reaching a two-month high despite a sharp rise in oil prices. Higher crude prices have pushed up US Treasury yields and strengthened expectations that the US Federal Reserve could raise interest rates this month.

The currency has also gained support from more aggressive RBI intervention. This was further reinforced on Thursday, when the central bank provided an update on inflows generated by its special schemes.

Dollar offers support to Rupee

The Dollar Index has slipped to around 99, its weakest level in nearly two weeks, after Federal Reserve Governor Christopher Waller indicated that he would support keeping interest rates unchanged this month if inflation continues to ease. Market expectations for a Fed rate hike have consequently fallen to around 50%, from above 60% in recent days.

An expert noted that a weaker dollar could provide additional support to the rupee, complementing the optimism around FCNR-related inflows. However, the currency’s near-term outlook remains closely tied to developments in crude oil prices.

Oil remains the key risk

Rising crude oil prices remain the biggest threat to the rupee’s recent gains. Tensions around the Strait of Hormuz have resurfaced after nearly a month of relative calm, pushing crude above $95 a barrel and resulting in a gain of more than 7% in just a few days.

The expert cautioned that any further escalation could drive crude towards the $100–104 a barrel range, which could put renewed pressure on India’s external balances.

The risk comes at a time when India’s current account deficit (CAD) widened to $4.2 billion, or 0.5% of GDP, in the April-June quarter, compared with $3.4 billion, or 0.4% of GDP, a year earlier. The merchandise trade deficit also expanded to $86.1 billion from $68.9 billion over the same period.

A sustained rise in oil prices could therefore widen the CAD further and keep demand for dollars from oil importers elevated, the expert said.

RBI’s forward position could limit rupee gains

The expert also highlighted the Reserve Bank of India’s (RBI) forward dollar position as a potential source of demand for the US currency. The RBI’s net short dollar forward position reached a record $136.77 billion at the end of July, with around $22.9 billion due to mature over the next three months.

As these positions mature, they could generate dollar demand and prevent excessive appreciation in the rupee, the expert explained.

At the same time, surplus rupee liquidity has climbed to a record ₹9.7 lakh crore, reducing the need for the RBI to undertake aggressive spot-dollar purchases. Instead, managing its forward book could allow the central bank to absorb some of the excess rupee liquidity while simultaneously generating dollar demand, according to the expert.

Rupee Outlook

Amit Pabari, MD, Research Team, CR Forex Advisors, said Overall, the FCNR story has given the rupee a strong shot in the arm, but the underlying fundamentals still carry their share of risk. 94–94.20 remains a strong support zone. Any negative surprise, especially from the oil front, could pull USDINR back up towards 95, 95.50 and eventually 96.

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