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Rupee fades as oil gains outweigh dollar weakness
USD/INR rebounded to around 95.72 from 95.59 as crude rose for a fifth straight day on fresh US measures targeting Iran.
The Indian rupee gave back most of its early gains versus the US dollar on Thursday, with USD/INR rebounding to around 95.72 after trading as low as 95.59 earlier in the session, according to FXStreet.
The move reflects a tug of war between a softer dollar and firmer crude, FXStreet reported. The dollar index, or DXY, hit a fresh three month low of 98.56, but higher oil prices limited upside for the Indian currency.
Oil extended its rally for a fifth consecutive day after US President Donald Trump announced new measures to intensify economic pressure on Iran. Strategists at ING said the escalation reinforced the latest leg higher in crude benchmarks, with the MCX Crude Oil contract expiring September 21 up about 2% to just above Rs. 8,300, the highest level in more than three weeks.
FXStreet also pointed to the dollar backdrop, noting the rupee had opened higher following a sharp drop in long dated US bond yields. That decline followed a Wall Street Journal report that the US Treasury plans to at least double the maximum size of its liquidity support buyback operations for longer dated nominal securities, from up to $2 billion per operation to at least $4 billion per operation, aimed at curbing borrowing cost spikes.
OCBC strategists said RBI linked USD sales appear to have helped contain losses and keep USD/INR from extending higher, even as the wider backdrop turned more supportive due to the dollar pullback. They added that elevated oil prices and importer dollar demand are likely to keep the rupee from fully capitalizing on the dollar weakness.
Latest closeWTI crude $82.40 ▲1.4%|Dollar index 99.64 ▼0.3%