Rupee gains 22 paise against dollar: Key factors supporting the currency

The Indian rupee opened stronger on Friday at ₹95.71 against the US dollar, compared with Thursday’s (September 17's) close of ₹95.93, gaining 22 paise in early trade.

The move comes as a retreat in crude oil prices and expectations of foreign portfolio inflows linked to the $2.3-billion Stock Exchange (NSE) IPO provide some support to the currency.

However, the rupee remains on track for a weekly decline, with importers’ dollar demand and elevated oil prices continuing to pose risks.

Why is the rupee gaining?

One of the key factors supporting the rupee is the recent easing in crude oil prices. Brent crude was down 0.7% at $104.1 a barrel, extending losses into a third session.

Lower crude prices are generally positive for the rupee because India imports a large share of its crude oil requirements. A sustained decline in oil prices can reduce the country's import bill and, in turn, ease pressure on the current account and demand for dollars.

The rupee is also getting support from expectations of foreign investor inflows into Indian equities. The $2.3-billion NSE IPO, which closes for subscription on Monday, is expected to attract sizeable foreign institutional investor demand. Such inflows increase the supply of dollars in the domestic market as foreign investors convert funds into rupees.

A modest retreat in US bond yields has also provided some relief to emerging-market currencies.

What could limit the rupee's gains?

Despite these supportive factors, analysts expect dollar demand from Indian importers to restrict any sharp recovery in the rupee.

Oil remains a key risk. BofA Global Research said crude prices at $80 a barrel or above, along with a seasonal deterioration in India's current account deficit towards the end of the third quarter, could weigh on the rupee.

The brokerage said the currency would need consistent capital inflows or RBI support to remain range-bound.

What does this mean for the rupee?

The rupee's 22-paise opening gain indicates some near-term relief, but it does not necessarily signal a sustained recovery. For the currency, the direction of crude oil prices, foreign portfolio flows, US bond yields and domestic dollar demand will remain important factors to watch.

Meanwhile, Asian currencies were trading 0.1% to 0.4% stronger, while regional equities also gained. Global monetary policy remains in focus as central banks assess inflation risks amid geopolitical tensions.

-With Reuters inputs