Indian rupee's familiar push-pull set to persist with oil pressure, RBI response

The Indian rupee is poised to open almost unchanged on Tuesday, caught in a tug-of-war between higher oil prices, dollar demand from companies hedging their foreign exchange exposure, and the Reserve Bank of India's ongoing market presence. Traders anticipate the rupee to open in the 94.48 to 94.50 range, up from 95.70 on Monday.

The recent surge from around 95.70 to 94.50 has lost steam, as rising oil prices and increased importer hedging efforts put the brakes on the currency's gains. Importers have taken advantage of the rupee's recovery to secure their dollar needs, while the threat of more expensive crude oil continues to fuel demand for hedging. The Reserve Bank of India, which initially propelled the rupee rally through persistent dollar sales, now plays a more passive role, absorbing oil-related pressure and rising US Treasury yields rather than actively pushing the currency higher.

Currency traders at a bank note that the RBI is particularly focused on defending the 94.50 level at present. Oil and importer demand pose significant hurdles in driving the dollar/rupee exchange rate lower, and the RBI may be more content with maintaining the current levels. Oil prices saw a modest uptick on Tuesday, with Brent crude hovering near $97 a barrel, driven by heightened US-Iran tensions and threats to Gulf energy infrastructure, which raise concerns about potential supply disruptions via the Strait of Hormuz.

Brent crude prices had surged nearly 8% last week. Goldman Sachs has raised its Brent forecasts by $5 a barrel, projecting $85 for December 2026 and $80 for 2027, assuming that Middle East shipping disruptions persist into the following year. However, the bank warns that risks to these forecasts remain significantly tilted to the upside, with Brent potentially reaching $120 in its most optimistic scenario.