Rupee Climbs as RBI Dollar Sales Counter Oil-Driven Pressure

Key Moments

RBI Steps In as Rupee Firms Against the Dollar

The Indian Rupee strengthened sharply after opening flat against the US Dollar (USD) on Friday, with the USD/INR pair retreating toward 96.50 as the Reserve Bank of India (RBI) again moved to stabilize the currency.

A Reuters report indicated that the central bank was likely supplying US dollars close to the 96.80 INR area. The same report noted that state-owned banks were observed offering US dollars, presumed to be acting on behalf of the RBI.

On Thursday, the RBI had also been active in both the spot foreign-exchange market and the non-deliverable forwards (NDFs) segment to cushion the Rupee.

Market participants, however, view this support as provisional. Persistent strength in crude oil prices and the renewed pricing of additional Federal Reserve interest rate hikes are expected to reapply pressure on the Indian currency.

Geopolitical Risks Sustain Elevated Oil Prices

Crude prices have advanced substantially in recent weeks as military tensions between the United States and Iran have intensified. In response to these developments, Yemen’s Iran-aligned Houthi group has shut the Bab el-Mandeb Strait, the southern access point to the Red Sea, tightening global energy supplies further.

With no progress toward a diplomatic resolution, concerns are rising that this supply disruption could persist. Such a backdrop is typically negative for currencies belonging to major oil-importing economies, including India, which rely heavily on external crude supplies to meet domestic energy demand.

Higher Oil Rekindles Hawkish Fed Expectations

The upswing in oil prices has unsettled inflation expectations and led markets to reassess the outlook for US monetary policy. Data from the CME FedWatch tool show that the probability of a Federal Reserve rate increase at the upcoming policy meeting has climbed to 35.8%, up from 11.8% a week earlier.

This shift toward a more hawkish Fed stance has pushed US Treasury yields higher, eroding the appeal of risk-sensitive currencies. At press time, US yields were trading near 4.70%, marking their highest level since January 2025.

Firm US bond yields have also underpinned the US Dollar. During Asian trading, the US Dollar Index (DXY) – a measure of the Greenback’s performance against six major peers – held close to a three-week peak near 101.50, reached on Thursday.

Indian PMI Data Signal Cooling Private-Sector Momentum

India’s flash HSBC Composite Purchasing Managers’ Index (PMI) for July came in at 54.3, down from 57.1 in June, indicating slower expansion. Softer activity in both manufacturing and services sectors contributed to the moderation in the composite reading.

“Renewed tensions in the Middle East have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock. Finished goods and input inventories increased alongside a pick-up in purchasing volumes. Both, output and new export orders rose, even as the overall manufacturing growth eased slightly. Price pressures firmed, with output charge inflation gathering pace and signalling a renewed push to protect margins,” Pranjul Bhandari, Chief India Economist at HSBC, said.

USD/INR Technical Setup: Uptrend Intact Above 20-Day EMA

USD/INR is trading lower around 96.50 but continues to hold above the 20-day Exponential Moving Average (EMA) at 95.9678, preserving a constructive upside bias.

The price action above this short-term trend indicator suggests that pullbacks are being bought. The Relative Strength Index (RSI) near 61 reflects solid, though not yet overstretched, bullish momentum.

On the downside, the first layer of chart support is located around the 20-day EMA near 95.97, where buyers are expected to step in to defend the prevailing uptrend. On the upside, the all-time high near 97.10 remains the key resistance zone for USD/INR.