Rupee Rangebound as Easier Oil Prices Offer Shallow Support

Mumbai, May 4: The rupee traded rangebound on Monday, down four paise at 94.96 per dollar, finding only brief support from softer oil prices even as the broader outlook remained tilted to the downside amid persistent external pressures.

The currency opened weaker at 94.95 against the US dollar, slipping about 4 paise from its previous close of 94.91, extending the pressure seen in recent sessions. During the day, the rupee hit a low of 94.99 and a high of 94.82. This comes after the rupee had hit a record low of 95.33 last week as surging crude prices rattled markets and triggered heavy dollar demand.

There are two competing forces at play.

Easing Oil

On one hand, the rupee is getting near-term support from easing oil prices. Crude has retreated from recent highs after the US signalled efforts to clear shipping disruptions in the Strait of Hormuz, helping cool some of the risk premium. This has allowed the rupee to stabilise briefly.

But that support is shallow and possibly temporary.

Bearish Bias

On the other hand, the underlying bias remains bearish, driven by structural and flow-related pressures. Elevated oil prices, still above $100 per barrel, continue to strain India’s import bill and widen the current account deficit, keeping demand for dollars elevated from oil marketing companies and importers.

At the same time, persistent dollar demand and hedging activity are limiting any meaningful upside for the rupee. Importers continue to buy dollars on dips, while global uncertainty has kept safe-haven demand for the US currency intact.

Hawkish Fed

Adding to the pressure is the broader macro backdrop. A hawkish US Federal Reserve stance and volatile capital flowshave weighed on emerging market currencies, including the rupee. Analysts caution that even with intermittent RBI intervention, the currency may struggle to stage a sustained recovery if oil remains elevated and geopolitical tensions persist.

The recent trend underscores this vulnerability. The rupee has declined nearly 2% over the past several sessions, reflecting how quickly sentiment can turn when crude prices spike and global risk appetite weakens.

Shallow Support

In essence, the rupee is caught in a tug-of-war. Softer oil is offering momentary breathing room, but not enough to change the bigger picture.

Unless there is a sustained and meaningful correction in crude prices or a clear easing in geopolitical tensions, the path of least resistance for the rupee may remain downward. For now, the currency may stabilise in the near term but the undertone remains cautious, with risks still skewed to further weakness.

Source:

• spot rates