Rupee to benefit from oil plunge while facing technical resistance, dollar strength

The Indian rupee is poised to open stronger on Tuesday, buoyed by a decline in crude oil prices, though the extent of its gain may be tempered by the strength of the dollar and technical hurdles, according to traders. The currency is anticipated to open around 94.75-94.78 against the dollar, following its settlement at 94.90 on Monday.

The significant drop in Brent crude by 11% on Monday, triggered by expectations of a Middle East resolution and a stabilization of supplies, played a pivotal role. High oil prices have historically exerted pressure on the rupee, amplifying macroeconomic concerns, increasing the need for corporate hedging, and deterring foreign portfolio investments.

The Reserve Bank of India has consistently intervened in the foreign exchange market to mitigate these pressures, purchasing dollars and implementing other supportive measures. However, a potential lasting peace in the Middle East could offer a substantial relief to the rupee. A currency trader from a private sector bank opined that the rupee's fortunes largely rely on oil, particularly if a durable truce is achieved.

Despite the favorable opening, the rupee may encounter technical resistance in the 94.50-94.70 zone. Additionally, a weakening trend across Asian currencies, including the Indonesian rupiah and Philippine peso, could further limit the rupee's upward trajectory. Recent US equities decline and flat futures in Asia, coupled with investors contemplating the implications of the US midterm elections, have contributed to this cautious sentiment. MSCI's Asia-Pacific index, excluding Japan, experienced a 0.8% decline.