The Indian opened marginally higher by 3 paise at 94.97 against the US dollar on Monday, 1 June, even as rising crude oil prices and expectations of continued foreign portfolio outflows weighed on sentiment.
Oil prices climbed after hopes of a breakthrough in US-Iran peace negotiations faded. Brent crude advanced more than 2.5% to $93.4 per barrel as Israel intensified military operations in Lebanon, reducing expectations that Washington and Tehran would soon agree to extend their ceasefire arrangement.
The surge in put pressure on most Asian currencies, with the South Korean won emerging as the biggest loser, declining 0.9%. The rupee is also expected to face headwinds from higher oil prices, with anticipated foreign portfolio outflows likely to add to the pressure on the domestic currency.
According to market experts, the Indian rupee staged a strong recovery recently, aided by RBI intervention and a sharp decline in crude oil prices. Optimism surrounding ongoing US-Iran discussions to extend the ceasefire and reopen the Strait of Hormuz has pushed crude oil prices down from around $111 per barrel to nearly $93, providing relief to major oil-importing economies such as India.
RBI continues to manage volatility
Experts noted that India’s foreign exchange reserves fell to $681.4 billion for the week ended 22 May from $688.9 billion a week earlier. However, much of the decline was attributed to valuation losses, particularly in gold holdings and foreign currency assets. The data suggests the RBI remains active in managing excessive currency volatility.
Focus shifts to RBI policy meeting
With the monetary policy meeting scheduled for June 3–5, experts believe the central bank faces a delicate balancing act. While consumer inflation remains below the RBI’s 4% target, rising fuel prices and a sharp increase in wholesale inflation have raised concerns about future price pressures.
Rate hike expectations increase
Experts believe the combination of inflation risks, currency sensitivity, and the need to attract foreign capital through debt inflows has strengthened the case for a more cautious RBI stance. As a result, the probability of a rate hike appears higher than it was a few months ago.
Rupee Outlook
According to Amit Pabari, Managing Director of CR Forex Advisors, the 95.50–95.75 zone remains a crucial technical resistance area for the USD/INR pair. He noted that as long as crude oil prices remain contained and global risk sentiment continues to improve, the Indian rupee is likely to maintain its positive bias. Under such conditions, the domestic currency could gradually strengthen towards the 94.00–94.50 range in the near term, he added.
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