Rupee Steadies as RBI Buys Reserves, Oil Shifts

Key Moments

Rupee Opens the Week Stable on Flows and Policy Backstop

The Indian Rupee (INR) is largely unchanged against the US Dollar (USD) on Monday, setting a subdued tone at the start of the week. Persistent capital inflows are lending support to the domestic currency, while traders closely monitor swings in crude oil and the possibility of Reserve Bank of India (RBI) action aimed at cushioning volatility.

Selling in crude oil earlier provided some breathing room for the Rupee as market participants locked in gains ahead of anticipated US announcements on tighter sanctions against Iran. That pullback has tempered immediate pressure on India’s oil import bill, at least for now.

Iran Sanctions and Strait of Hormuz Risks Keep Oil Markets on Edge

The respite in energy prices remains fragile. Crude benchmarks face the risk of a renewed upswing after US Treasury Secretary Scott Bessent signaled that Washington is preparing to implement unprecedented sanctions on Iran. The potential escalation is occurring against a backdrop of heavy disruption to Iranian exports, fewer offers directed to Chinese buyers, and an ongoing US naval blockade.

These factors threaten to further tighten global supply, with geopolitical stress around the Strait of Hormuz still acute. Vessel traffic through this key chokepoint continues to run well below historical norms, a key issue for India, which is described as the world’s third-largest crude importer and has already seen record foreign investor equity outflows earlier this year amid surging oil prices.

Oil Futures Curve Shows Markets Preparing for Prolonged Disruption

According to analysts at Deutsche Bank, pricing along the Brent futures curve is increasingly embedding geopolitical risk. They note that “if we look at the oil futures curve, it’s clear that markets are starting to price in a longer closure of the Strait of Hormuz again.”

This evolving term structure suggests traders are reassessing both the likely duration and intensity of potential supply interruptions. The shift is helping to sustain the resilience of crude benchmarks and is keeping inflation and bond-yield concerns at the forefront for policymakers and investors.

RBI FX Accumulation Bolsters Rupee Backdrop

Despite ongoing geopolitical uncertainty that could dampen risk-taking generally, the Rupee is expected to find a buffer from the RBI’s active presence in the foreign exchange market. Over the weekend, the central bank reported that it has accumulated nearly $73 billion under programs initiated in June to strengthen India’s balance of payments, pushing foreign exchange reserves close to record highs.

Policy Outlook: MUFG Sees RBI Pivoting Away From Easing

Analysts at MUFG/BTMU say the RBI’s latest communication marks a meaningful change in tone. They emphasize that “the August MPC minutes were more hawkish than the actual policy meeting and also what markets expected,” and that the minutes “also suggest the RBI has reached the end of its easing cycle with the next move higher rather than lower.”

This assessment underpins MUFG’s view that the central bank is preparing to move away from an accommodative stance and towards eventual rate hikes in the coming months.

Equities Rebound Modestly After Two Weeks of Losses

Indian stock benchmarks opened slightly firmer on Monday, breaking a streak of two consecutive weekly declines. In the previous week, the Nifty 50 slipped 0.5% and the BSE Sensex fell 0.6%, pressured by rising crude prices and higher bond yields amid intensifying tensions in the Middle East.

Investor sentiment is set to remain guarded as markets analyze the details and implications of the newly announced US sanctions regime.

US Fiscal Moves Weigh on the Dollar, Support USD/INR Drift Lower

The USD/INR pair has edged lower as the US Dollar faces headwinds from fresh fiscal initiatives in Washington. The US Treasury Department surprised markets by announcing it would at least double its buybacks of longer-dated government securities in an attempt to rein in rising yields. Treasury Secretary Bessent indicated that the buyback program could grow beyond $4 billion, with the goal of bringing yields more closely in line with underlying economic conditions.

Dollar Under Pressure From Fiscal Concerns

Strategists at Scotiabank argue that the currency is bearing the brunt of growing worries over US public finances. With authorities prioritizing the containment of long-term yields, they maintain that “efforts to suppress long-term yields mean that the USD will bear a greater—negative—burden from US fiscal policy concerns,” supporting their view that the Dollar is likely to stay under strain as these issues continue.

Technical Picture: USD/INR Holds Bullish Structure Despite Pullback

USD/INR is trading near 95.70 and remains above both the nine-period and 50-period Exponential Moving Averages (EMAs), leaving the immediate bias mildly constructive. The nine-period EMA, positioned at 95.6251 just beneath the spot level, underpins the short-term positive tone, while the 50-period EMA at 95.4515 supports the broader uptrend.

The 14-day Relative Strength Index (RSI) is hovering around 52, indicating neutral-to-firm momentum rather than stretched conditions. This leaves scope for additional upside as long as prices remain above the key moving averages.

On the downside, immediate support is located at the nine-period EMA near 95.6251, with a stronger base at the 50-period EMA around 95.4515. Provided USD/INR holds this support band, corrective moves may stay shallow, allowing buyers to maintain control. With no clearly defined resistance nearby, any renewed advance would likely require the market to establish fresh upside reference levels.