Indian Rupee falls further as oil prices extend surge, India-US CPI awaited

The Indian Rupee (INR) experienced early losses against the US Dollar (USD) on Wednesday, but later recovered slightly due to potential intervention from the Reserve Bank of India (RBI). As of the latest reports, the USD/INR exchange rate was trading near 95.33. State-run banks' dollar sales, possibly on behalf of the RBI, helped limit the losses.

However, traders expressed caution ahead of the key United States (US) inflation print and concerns over rising oil prices. This cautious sentiment prevented the currency from making significant gains.

The Indian rupee underperformed initially due to surging oil prices, which created a risk of higher foreign outflows. The MCX Crude Oil contract, expiring on August 19, was trading flat at around Rs. 7,950 but was near its weekly high of Rs. 8,075. The Indian rupee tends to underperform when oil prices are high, as economies relying heavily on oil imports face increased costs.

Oil supply disruptions due to the closure of the Strait of Hormuz, a crucial chokepoint for nearly 20% of global energy supply, have also contributed to the surge in oil prices. As of August 10, shipping traffic through the Strait of Hormuz was recorded at just six vessels, a significant decrease from the recent 10-day average of about 11 ships. This sharp decline from pre-war levels of 130 to 140 ships daily highlights the ongoing tensions between the United States (US) and Iran.

India's retail Consumer Price Index (CPI) for July grew almost in line with estimates, with annualized inflation accelerating to 4.45%, remaining within the RBI's tolerance band of 2%-6%. This data, expected to be released at 4.5%, suggests steady inflation growth. Such inflation trends are unlikely to prompt the RBI to consider raising interest rates in the near term. The RBI left its key policy rates unchanged in the previous monetary policy announcement and adopted a data-dependent approach.