Rupee Gains 14 Paise as Dollar Index Weakens, Oil Prices Decline

The Indian rupee opened 14 paise higher on February 17, trading at 86.6925 against the US dollar compared to its previous close of 86.8325. This appreciation was largely attributed to the easing of Brent crude oil prices and a slight decline in the dollar index, factors that played a crucial role in supporting the domestic currency.

In early trading, the dollar index, which tracks the value of the US currency against six major global counterparts, softened to 106.670 from its previous close of 106.710. A weaker dollar often benefits emerging market currencies, including the rupee, as it makes foreign investments more attractive and reduces the cost of imported goods.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Factors Influencing the Rupee’s Strength

According to Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, the dollar remained on the backfoot as traders continued to assess weaker-than-expected US retail sales data. He further noted that market participants expect the Bank of Japan to tighten monetary policy by implementing a cumulative 35 basis points rate hike by December. This expectation has further pressured the US dollar, as traders anticipate policy divergence between Japan and the US.

In addition to these global economic trends, India’s strong foreign exchange reserves and robust macroeconomic indicators have also contributed to the rupee’s relative stability. The Reserve Bank of India (RBI) has actively intervened in the foreign exchange market to prevent excessive volatility, ensuring that the rupee remains resilient amid global uncertainties.

Impact of Declining Crude Oil Prices

Oil prices continued their downward trend for the fourth consecutive session, driven by increasing optimism over a potential peace deal between Russia and Ukraine. If successful, such an agreement could ease geopolitical tensions and lead to a reduction in sanctions, thereby improving supply chain flows in the global energy market.

Brent crude futures fell by 20 cents, or 0.2%, to $74.59 per barrel by 0112 GMT. Over the past four sessions, Brent crude has declined by 3.1%, reflecting growing market confidence that diplomatic negotiations between the US and Russia could bring an end to the ongoing war in Ukraine. Reports suggest that former US President Donald Trump and key administration officials have initiated discussions with Russia regarding a potential resolution to the conflict, which has had significant economic repercussions worldwide.

Lower oil prices are beneficial for India, as the country imports nearly 85% of its crude oil requirements. A decline in global crude prices reduces India’s import bill, helping to narrow the trade deficit and supporting the rupee. Additionally, lower fuel costs help in controlling inflation, providing relief to businesses and consumers alike.

Outlook for the Rupee

Market analysts believe that the rupee’s short-term trajectory will depend on multiple factors, including further developments in US economic data, global crude oil price movements, and central bank policies. The upcoming Federal Reserve meeting will be closely watched, as any indications of a shift in monetary policy could impact the dollar’s strength and, consequently, the rupee’s performance.

Additionally, foreign portfolio investments (FPIs) will play a key role in determining the rupee’s movement. A strong inflow of foreign investments into Indian equities and bonds would further bolster the currency. Conversely, any significant outflow due to global risk aversion could put downward pressure on the rupee.

In the coming weeks, traders will also monitor India’s economic indicators, including GDP growth, inflation rates, and trade balance figures, to gauge the rupee’s direction. While global uncertainties persist, India’s strong economic fundamentals and lower crude oil prices provide a supportive backdrop for the local currency.

Overall, the rupee’s appreciation against the dollar highlights the impact of global economic trends and commodity price movements. If oil prices remain subdued and the dollar index continues to weaken, the Indian rupee could see further gains in the near term.