Rupee hits one-month closing high as oil slide outweighs RBI pause
The rupee opened 0.5% higher at 94.92 per U.S. dollar, its highest since July 1. Soon after, it surrendered nearly half of the gains to end at 95.1175, its strongest closing level since July 7.
The Reserve Bank of India‘s decision to hold rates and a recovery in the dollar and oil prices dragged down the rupee from its intraday highs, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
“From a technical standpoint, the spot USD/INR is seeing immediate support around 94.75 and resistance near 95.60. Although the macro bias for the pair remains structurally weak, short-term bargain hunting could push the currency toward resistance levels,” he added.
OIL PLAY
The benchmark Brent crude contract fell over 12% in the last two sessions on hopes of a diplomatic breakthrough in the five-month long U.S.-Iran war. Oil prices, however, rebounded on Wednesday after Yemen’s Iran-aligned Houthi rebels attacked a Saudi oil tanker in the Red Sea.
The sharp slide earlier this week reinforced a positive bias for the rupee, which has strengthened 1.4% over the last eight trading sessions. Traders also said that the recent rise in FX inflows have broadly aided sentiment.Market participants said that the rupee’s rise beyond the 95-per-dollar level would continue to attract dollar demand.
RBI VERDICT
The RBI left its key rate and policy stance unchanged on Wednesday, as policymakers await clearer evidence on whether volatile oil prices are fuelling broader inflationary pressures.
Market participants, however, remain divided. Sonal Badhan, an economist at state-run Bank of Baroda, expects at least one 25-basis point rate hike in December to prevent real interest rates from turning negative and to protect the rupee.
Dollar/rupee forward premiums eased on the day, largely tracking moves in the spot market. The one-year implied yield fell 7 bps to 2.79%.
