Rupee opens little changed against dollar as higher oil prices weigh on currency

The Indian rupee opened marginally stronger at 96.25 against the US dollar on Thursday (July 16), compared with Wednesday's (July 15's) close of 96.26, but remained under pressure as rising crude oil prices and escalating geopolitical tensions in the West Asia continued to weigh on the currency.

The rupee has fallen around 1.7% so far this month and is trading close to its record low of 96.96 per US dollar, hit in May, as concerns over higher oil import costs and stronger demand for the dollar have intensified.

The currency had found some support after the Reserve Bank of India (RBI) announced measures to encourage dollar inflows and crude oil prices briefly eased towards $70 a barrel. However, that support has largely faded as oil prices resumed their upward trajectory, according to market participants.

Currency dealers said recent price action indicates that traders have returned to a "buy dollar on dips" strategy, reflecting expectations that the dollar-rupee pair could move higher if oil prices remain elevated.

Why higher oil prices matter for the rupee

India imports more than 85% of its crude oil requirement. A sustained rise in global oil prices increases the country's import bill and raises demand for US dollars to pay for those imports, putting downward pressure on the rupee.

Brent crude climbed above $85 per barrel amid fears of supply disruptions through the Strait of Hormuz, one of the world's busiest oil transit routes.

The latest rally in crude followed an escalation in tensions between the United States and Iran. The US targeted Iran's coastal defence and missile infrastructure after reimposing a naval blockade on Iranian ports, while Iran warned it could further restrict regional energy exports.

Analysts say the geopolitical conflict has heightened concerns over oil supplies and shipping through the Persian Gulf, keeping crude prices elevated.

With the RBI's earlier support measures losing momentum and crude prices rising again, the rupee is likely to remain sensitive to developments in global oil markets and the West Asia conflict.

-With Reuters inputs