With intensifying West Asia conflict triggering a surge in global crude oil prices amid supply concerns, the rupee breached the 95 to the dollar mark on Wednesday, after remaining below this level for six consecutive trading sessions even as the support it had from FCNR (B) deposit related inflows seems to be waning.
The rupee closed at 95.10 per dollar, down 29 paise against the previous close of 94.81. It opened 4 paise weaker at 94.86/87 and tested a intraday low of 95.2250. However, RBI intervention pulled it back from the day’s lows.
Amit Pabari, MD, CR Forex Advisors, observed that the move above 95 level marks a reversal of the temporary support that the Rupee had received from the exceptional FCNR-related dollar inflows.
“The first and perhaps the most immediate pressure is coming from crude oil. Brent crude has moved towards and above $100 per barrel as geopolitical tensions in the Middle East intensify. For India, a sustained rise in crude prices is particularly negative because it increases the country’s import bill and consequently raises dollar demand from oil importers.
“This creates a direct headwind for the rupee at a time when the exceptional dollar supply from FCNR-related flows is no longer available to offset it,” he said.
Ritesh Bhansali, Deputy CEO, Mecklai Financial Services, said: “Right now, with the West Asia war showing no signs of abating, crude oil, which is at elevated levels, is the most sensitive element with respect to movement of the rupee.”
However, with a total of $136.37 billion flowing into the country via FCNR(B) deposits, ECB and OFCB routes during the June 08 to August 31, 2026, and the RBI absorbing these flows to build its reserves, the expectation is that at least in the near term, the central bank has got enough ammunition to defend rupee.
“Even if you look at what RBI has been doing over the last 2-3 weeks, they are present almost on a daily basis in the market. They intervene offshore and onshore also. Although the quantum of intervention is not very aggressive, they are intervening almost on a daily basis trying to reduce the volatility in rupee,” Bhansali said.
The CR Forex Advisors chief opined that the rupee had remained around 95.50–95.70 even after nearly $73 billion of FCNR(B) inflows had already come in by August 21. The sharp appreciation came only in the final week before the August 31 deadline, when inflows accelerated, taking total mobilisation to around $136.4 billion. This highlights that the recent rupee strength was largely flow-driven and temporary, rather than a reflection of a broad improvement in fundamentals.
Pabari noted that although the FCNR(B) mobilisation window closed on August 31, the dollar inflows did not stop immediately. The associated forex swap transactions continued to settle over the following week, meaning additional dollar supply continued to enter the market even after the formal deadline. This explains why the rupee continued to appreciate in the first few sessions of September.
“However, as these swap settlements have now largely been completed, the exceptional dollar supply that had been supporting the rupee is gradually fading. With that temporary cushion disappearing, the underlying global pressures on the currency are becoming more visible,” he said.