Indian rupee RBI-cushioned weakness may find relief from softer oil

MUMBAI: The Indian rupee is poised to open marginally higher on Friday, as a decline in oil prices provides some relief to the currency after a week of persistent pressure. Traders anticipate the rupee to open around 95.38-95.40 to the dollar, after settling at 95.44 on Thursday. Although this week's decline of roughly 0.2% in the rupee understates the severity of the strain, banking experts point out that Reserve Bank of India's frequent interventions have absorbed much of the dollar demand, masking the currency's true weakness and keeping its movements relatively under control.

The Reserve Bank of India's near-daily actions across various levels have effectively absorbed the majority of the dollar demand, thereby dampening the currency's actual decline and maintaining relatively stable movements. If it weren't for the RBI's interventions, the currency's losses would have been significantly larger, according to banking experts, who note that non-deliverable forward market maturities and robust dollar demand from importers are the primary sources of pressure.

The relief from oil prices comes as Brent crude fell more than 2% on Thursday, slipping further in Asian trading to approximately $86.50 a barrel. This development occurs despite a US threat to maintain a naval blockade of Iranian ports indefinitely. While the pullback in oil prices bodes well for the rupee at the opening bell, there is unlikely to be significant follow-through, according to a currency trader at a private-sector bank.

The RBI has "propped up" the rupee through persistent intervention, and even though oil prices have declined, there isn't much room for the currency to move higher, added the currency trader.

This latest US threat follows Iran's continued restrictions on traffic through the Strait of Hormuz, a critical oil shipping route. Oil prices remain underpinned by uncertainty surrounding the strait, as noted by ING Bank in a recent report. While the US appears to be concentrating on economic pressure rather than military escalation, substantial obstacles remain before any broader agreement can be achieved, the report further emphasizes.