Rupee opens 3 paise higher at 96.17 against US dollar

The Indian rupee opened 3 paise higher at 96.17 against the US dollar on Wednesday, 15 July, supported by softer-than-expected US inflation data, easing concerns about an imminent Federal Reserve rate hike, although gains were capped by elevated crude oil prices.

The domestic currency has remained under pressure amid escalating US-Iran tensions, which have fuelled a sharp rally in oil prices. Brent crude hovered near $86 per barrel during Asian trading, significantly higher than the level of around $70 per barrel seen just two weeks ago.

In the previous session, the rupee slipped beyond the 96-per-dollar mark despite intervention by the Reserve Bank of India (RBI) through dollar sales in both the spot and non-deliverable forward (NDF) markets, highlighting the persistent pressure on the local currency.

The rupee, along with other Asian currencies, found support after softer-than-expected US inflation data reduced expectations of imminent interest rate hikes by the Federal Reserve. Consumer prices rose less than anticipated in June, easing concerns over persistent inflationary pressures.

According to CME Group's FedWatch Tool, the probability of a 25-basis-point Federal Reserve rate hike at the July policy meeting dropped to 16.6%, down sharply from 41.7% a day earlier. Expectations for a September rate increase also moderated, with the implied probability falling to 59.8% from 75.1% on Monday, according to Reuters report.

Market expectations of additional Fed tightening had strengthened in recent days as escalating tensions in the Middle East and the resulting surge in crude oil prices raised concerns about renewed inflationary pressures.

Oil shock offsets Fed-driven relief for the Rupee

According to experts, any relief for the rupee from softer US inflation is being overshadowed by escalating geopolitical tensions in the Middle East. Iran's reported attack on two UAE-owned oil tankers in the Strait of Hormuz, which killed one Indian crew member and injured eight others, prompted the US to reimpose a naval blockade on Iranian vessels and propose a 20% transit fee on other cargo passing through the strategic waterway.

The renewed tensions have pushed Brent crude above $85 per barrel, marking a gain of more than 10% over the past week. For India, a major crude importer, higher oil prices translate into a larger import bill and increased demand for dollars from oil marketing companies, limiting the rupee's ability to benefit from a weaker US dollar.

Rising crude weighs on market sentiment

According to experts, the spike in oil prices also dampened sentiment in domestic equity markets. The BSE Sensex declined 561 points, while the Nifty 50 lost 159 points, as investors worried that elevated crude prices could stoke imported inflation and weigh on economic growth.

Reflecting rising market uncertainty, the India VIX climbed more than 3.5% to 13.75. Foreign portfolio investors (FPIs) also remained sellers, offloading Indian equities worth ₹739.69 crore, further boosting demand for the US dollar and adding pressure on the rupee.

Rupee Outlook

According to Amit Pabari, MD, Research Team, CR Forex Advisors, the 95.80-96.00 resistance has been breached, with the pair now trading above this barrier. If it sustains here, further upside cannot be ruled out. Support has shifted up to 95.70-95.80, and the broader view remains one of depreciation, with USDINR likely to head towards the 96.40-96.50 region in the coming days.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.