Rupee Rally Hits Roadblock: Why Recovery Is Losing Steam Despite RBI Push

The Indian rupee opened marginally stronger against the US dollar on Monday, but the currency's recent recovery faces fresh challenges as crude oil prices remain elevated and support from foreign fund inflows linked to the Jio Platforms IPO is expected to fade.

The rupee opened at 94.93 against the dollar on Monday (October 26), compared with Friday's close of 94.94, gaining 1 paisa at the start of the trading session. However, the currency remains vulnerable to a fall beyond the psychologically important 95-per-dollar mark.

Brent crude prices hovering near $115 a barrel and uncertainty over foreign investment flows are weighing on the outlook for the domestic currency. Traders also expect the US Federal Reserve's upcoming policy decision to influence currency movements this week.

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The rupee traded between 94.32 and 94.97 last week, finding support from inflows linked to the Jio Platforms IPO and the unwinding of currency positions. However, market participants expect this support to weaken as the IPO allotment process concludes on Monday, ahead of the company's stock market listing on Wednesday.

Why The Rupee's Recovery Could Lose Steam

The Jio Platforms IPO attracted strong demand from foreign institutional investors. Some of the money associated with these investments is believed to have entered the spot currency market, helping support the rupee.

However, traders expect this source of support to diminish. A currency trader at a private sector bank told Reuters that last week's supportive flows were unlikely to recur, while elevated oil prices continued to weigh on sentiment.

This leaves the rupee more exposed to external pressures, with intervention by the Reserve Bank of India (RBI) remaining an important factor in determining its near-term direction.

Crude Oil Remains A Major Concern

The biggest challenge for the rupee continues to be expensive crude oil.

Brent crude rose more than 6 per cent last week, reaching a six-month high near $115 a barrel. Concerns over possible supply disruptions following attacks on Saudi Arabia have added to market uncertainty.

India imports a large share of its crude oil requirements. When oil prices rise, the country's import bill increases, potentially widening its trade deficit and putting pressure on the rupee.

Higher crude prices can also encourage businesses to hedge against currency fluctuations and weaken foreign portfolio investment sentiment, adding to the pressure on the domestic currency.

Dollar demand from oil refiners is not currently a direct source of pressure in the usual market, as the RBI's special window allows them to meet their foreign exchange requirements outside it. However, elevated oil prices remain a broader concern for India's external finances.

US Fed Policy Decision In Focus

Apart from crude oil prices and foreign fund flows, investors will track the US Federal Reserve's policy decision this week.

Markets widely expect the US central bank to leave interest rates unchanged. However, investors will look for clues about its future policy path, particularly whether another rate hike could be possible in December.

The Fed's guidance could influence the dollar's movement and capital flows into emerging markets such as India.

For the rupee, the immediate challenge is to sustain its recovery without the same level of IPO-linked inflows that supported it last week. With oil prices elevated and global monetary policy uncertainty lingering, the currency's ability to hold below the 95-per-dollar threshold will remain a key focus for traders.