The Indian rupee is likely to
be under pressure from high oil prices at Monday’s open, with
the central bank’s dollar sales expected to support the currency
and keep it near what traders perceive to be the central bank’s
soft defence line.
The rupee is expected to open in a 94.92 to 94.98
range, per traders, having settled at 94.96 to the dollar on
Friday.
The rupee has oscillated around the 95-per-dollar mark in
recent sessions, briefly strengthening past the level before
struggling to sustain it. Subsequent declines past that level
have repeatedly met resistance.
The pattern suggests that the Reserve Bank of India may be
selling dollars to limit weakness past the 95 level, making the
level an important near-term support for the currency, a
currency trader at a bank said.
The rupee last week posted its best weekly performance in
nearly four years, buoyed by the RBI’s measures to support the
currency and repeated dollar sales in the spot market.
The RBI has stepped up its intervention to prop up the
rupee, which remains under pressure from oil prices and capital
outflows.
The central bank’s stepped-up defence of the rupee alongside
sell/buy swaps is reflected in foreign exchange reserves. The
country’s reserves have shed nearly $60 billion since hitting an
all-time high in the first week of September, falling to $726
billion through October 9.
Oil a pain point
Oil remains a key pressure point for the rupee, with Brent
crude briefly climbing above $110 a barrel on Friday for the
first time since May. Prices dipped slightly on Monday, with
Brent trading around $108 a barrel after US President Donald
Trump waived new sanctions on Russia and tariffs on good from
Russia, potentially paving the way for increased Russian fuel
exports.
There is broad consensus among analysts and investors that
the RBI’s efforts to support the rupee will go only so far
unless oil prices retreat.