Rupee opens flat at 96.25 against US dollar

The Indian rupee opened flat at 96.25 against the US dollar on Thursday, 16 July, as elevated crude oil prices and weakening market sentiment continued to weigh on the domestic currency.

The rupee has remained under pressure after renewed US-Iran hostilities triggered another rally in crude oil prices, raising concerns over India's import bill and inflation outlook.

So far this month, the local currency has declined 1.7% and is edging closer to its record low of 96.96 per US dollar, touched in May.

According to a Reuters report, the support the rupee had received from the Reserve Bank of India's (RBI) recent measures aimed at boosting dollar inflows has largely dissipated, leaving the currency increasingly exposed to the impact of higher oil prices.

A currency trader quoted by Reuters said the rupee's near-term outlook had improved when Brent crude retreated towards $70 per barrel and the RBI introduced steps to attract foreign currency inflows. However, the renewed surge in oil prices following the escalation in the Middle East has reversed that trend, putting fresh pressure on the domestic currency.

Foreign investor appetite for Indian debt has moderated in recent weeks despite measures by the Reserve Bank of India (RBI) to attract overseas capital. According to market experts, foreign investors infused nearly $2.3 billion into Indian bonds during the first half of June, but inflows slowed to around $0.9 billion in the first half of July.

Analysts say the slowdown suggests that global investors are currently placing greater weight on geopolitical risks than on policy measures aimed at boosting capital inflows.

Market participants believe the escalating conflict in the Middle East remains the biggest overhang on the rupee. The United States recently carried out another round of strikes on Iran after reinstating a naval blockade on Iranian ports, intensifying concerns over potential disruptions to global oil supplies.

With every escalation, crude oil prices have remained elevated, increasing concerns over India's import bill, inflation outlook and the rupee's trajectory, experts noted.

Analysts also pointed to a revised bipartisan US Senate proposal that seeks to impose a 100% tariff on imports from the five largest buyers of Russian oil and gas, including India.

While the proposal is yet to become law and includes provisions allowing the US President to grant waivers, experts say it has added another layer of uncertainty. The concern stems from India's dependence on Russian crude, which accounted for nearly 50% of the country's oil imports in June, with purchases reaching a record 2.58 million barrels per day.

The US Dollar Index slipped to around 100.4, its lowest level in nearly a month, after softer-than-expected US inflation data strengthened expectations that the Federal Reserve may refrain from raising interest rates in the near term.

June producer prices unexpectedly fell 0.3%, following weaker-than-expected consumer inflation data released earlier in the week, reinforcing signs of easing price pressures in the US economy.

Under normal market conditions, a weaker dollar would have offered support to the rupee. However, currency experts say concerns over elevated crude oil prices, slowing foreign capital inflows and persistent geopolitical tensions have outweighed the benefits of a softer greenback, leaving the Indian currency under pressure.

According to Amit Pabari, MD, Research Team, CR Forex Advisors, technically, the 95.80-96.00 resistance zone has been decisively breached, with USDINR now trading comfortably above it. As long as the pair sustains above this area, the path of least resistance remains higher. Immediate support is seen at 95.70-95.80, while the next upside target comes in at 96.40-96.50.