Jio Platforms' IPO-linked inflows boost Indian rupee; elevated oil prices spur caution

Mumbai, India - The Indian rupee experienced a notable surge on Wednesday, fueled by foreign portfolio investments tied to Jio Platforms' IPO, while persistently high oil prices kept traders cautious about further gains for the currency. The rupee closed the day up 0.5% to 94.46 per dollar, its strongest level since early September, after peaking at 94.43 earlier in the session.

However, gains were pared back in the latter part of the day as oil prices climbed and domestic stocks declined. Brent crude oil futures rose 1.3% to over $110 per barrel, while India's benchmark Nifty 50 index slipped 0.7%. Iran's announcement that it would not negotiate with Washington until its demands were met, citing Middle East tensions, heightened concerns about potential supply disruptions and contributed to the oil price increase.

A trader at a state-run bank commented, "Volatility in oil will keep the rupee a little defensive, but sharp declines are unlikely in the near term." Despite global challenges, the inflows resulting from Jio Platforms' $3.2 billion IPO bolstered the rupee. The IPO was fully subscribed within less than two hours of public bidding on Wednesday, as investors poured into India's largest share sale.

Amit Pabari, managing director of FX advisory firm CR Forex, noted that with USD/INR holding below 95.00, the focus shifted to the 94.80-94.70 range. A sustained break below 94.80 could pave the way for the rupee to reach 94.00 over the coming weeks, making the near-term outlook favorable for the currency. Asian currencies remained largely rangebound, and the dollar index remained relatively unchanged at 101.8.

The focus will now shift to the release of the minutes from the Reserve Bank of India's latest monetary policy review, which took place earlier in the month. The central bank raised interest rates for the first time in four years on October 7 and signaled that more hikes could be forthcoming. Recent retail inflation data revealed a sharper-than-expected acceleration to 5.54% in September.

Swap markets currently price in over 100 basis points of rate hikes by the RBI within the next 12 months.