Rupee opens 5 paise lower at 95.48 against US dollar

The rupee opened 5 paise lower at 95.48 against the US dollar on Monday, 17 August, despite a weaker dollar, as the currency came under pressure after the Reserve Bank of India unexpectedly advanced the deadline for its discounted forex swap facility for non-resident Indian deposits.

The move came after weak US retail sales data reduced expectations of a Federal Reserve rate hike next month, weighing on the dollar.

The RBI said late Friday that it was bringing forward the deadline for the discounted forex swap facility by one month following more than $50 billion in inflows through non-resident Indian deposits.

Under the revised timeline, banks can access the zero-cost hedging facility for overseas foreign exchange deposits raised until 31 August, compared with the earlier 30 September deadline.

Rupee holds steady, but risks build beneath the surface

The USD/INR pair remained in an unusually narrow 7-paise range between 95.38 and 95.44 on Friday, reflecting a period of subdued volatility. However, market experts caution that the apparent stability could prove temporary as several external and domestic factors continue to weigh on the rupee.

Softer dollar offers some relief

The US Dollar Index has eased to around 99.50, providing some relief to emerging-market currencies. Recent US data, including retail sales, producer prices and consumer inflation, has also pointed to a moderation in economic activity. This has reduced expectations of an immediate Federal Reserve rate hike, experts said.

Foreign flows have provided additional support, with overseas investors bringing nearly $6.6 billion into Indian equities since June, helping absorb some of the pressure on the domestic currency.

Geopolitical risks remain a key concern

Despite these supportive factors, experts said geopolitical developments remain a major risk for the rupee. The US-Iran ceasefire arrangement is due to expire, while negotiations over reopening the Strait of Hormuz remain unresolved.

Fresh military action in Lebanon over the weekend has added to uncertainty. Any escalation could push crude oil prices higher, posing a fresh challenge for the rupee given India's dependence on oil imports.

RBI's forex support faces a deadline

Another key development is the RBI's FCNR(B) swap facility, which attracted nearly $50 billion in forex inflows. The central bank has now said that the facility will be available only for deposits mobilised until 31 August 2026.

Market experts said these inflows have provided an important cushion for the rupee, but the currency could face greater pressure once this temporary support begins to fade.

Narrowing yield gap could weigh on flows

Elevated G7 bond yields and a narrowing yield differential between emerging markets and the US could also weigh on the rupee, experts said. A smaller spread could reduce the relative attractiveness of emerging-market bonds and encourage investors to shift funds towards developed markets offering comparatively safer returns.

Trade deficit and dollar demand add pressure

The RBI continues to hold a sizeable forward dollar position of nearly $103 billion, while India's trade deficit widened sharply to $31.98 billion. Low forward premiums have also made hedging through forward contracts more attractive for importers, potentially adding to dollar demand.

Experts said that while none of these factors alone is enough to trigger significant rupee weakness, their combination creates underlying pressure on the currency. The rupee's recent calm, therefore, may represent a temporary pause rather than a lasting reduction in volatility.

Rupee Outlook

According to Amit Pabari, MD, Research Team, CR Forex Advisors, while the rupee may remain supported in the near term, the overall risk-reward appears tilted towards weakness.

Technically, the 95.20–95.30 zone is likely to act as an important support area. As long as this level holds, USD/INR could gradually move towards the 96.20–96.50 region in the coming days.

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