Indian rupee ends marginally higher in subdued trade, forward premiums ease

MUMBAI - The Indian rupee closed slightly higher on Monday, maintaining a narrow trading range, as lower oil prices and increased portfolio inflows bolstered the currency. The rupee ended at 95.8150 per dollar, up from 95.8725 the previous day. Asian currencies remained relatively stagnant, while regional equities saw a rise following a 2% drop in oil prices.

This optimism was fueled by expectations of diplomatic progress on the Iran war, following the United Nations meeting, and hopes for a partial recovery in Saudi Arabian shipments. Inflows from the National Stock Exchange of India's Initial Public Offering (IPO) also contributed to the rupee's strength. Traders noted that dollar bids from importers, such as local oil refiners, kept the gains in check.

Meanwhile, the forward premiums for the dollar-rupee pair eased, with the August 2027 month-end premium dropping 6 paisa to 2.94 rupees, indicating the reduction in previously held positions as traders evaluated the possibility of India joining the global trend of higher benchmark rates. Although the market anticipates Reserve Bank of India (RBI) rate hikes in the near term, the easing of forward premiums suggests that if this does not happen, it could prompt some participants to liquidate their stale positions, according to a trader at a state-run bank.

Following the recent U.S. Federal Reserve rate hike, analysts at ING believe that there is still potential for the U.S. dollar to gain further strength. They predict that both the European Central Bank and the Federal Reserve will raise rates in December, with a 55% chance of a rate hike at the Federal Reserve’s next meeting in October, according to the CME FedWatch tool.