Rupee posts one-month closing peak as oil slump offsets RBI hold

The rupee began the session 0.5% firmer at 94.92 per U.S. dollar, its best level since July 1. It later pared nearly half those gains to finish at 95.1175, marking its highest close since July 7.

The RBI’s move to maintain its policy rate, along with a rebound in the dollar and oil prices, pulled the rupee back from intraday highs, said Dilip Parmar, foreign exchange research analyst at HDFC Securities.

"Technically, spot USD/INR has immediate support around 94.75 and resistance near 95.60. While the broader macro outlook for the pair remains weak, near-term buying interest could push the rupee toward resistance," he said.

Oil play

Benchmark Brent crude has dropped more than 12% over the past two sessions amid hopes of diplomatic progress in the five-month-long U.S.-Iran conflict. Prices, however, bounced back on Wednesday after Yemen’s Iran-backed Houthi rebels targeted a Saudi oil tanker in the Red Sea.

The sharp correction earlier this week bolstered sentiment for the rupee, which has appreciated 1.4% over the last eight trading days. Traders added that a recent uptick in foreign exchange inflows has further supported the currency.

Market participants noted that any move beyond the 95-per-dollar mark is likely to draw fresh demand for dollars.

RBI verdict

The RBI kept its benchmark rate and policy stance unchanged on Wednesday as officials await clearer signs on whether volatile crude prices are feeding into broader inflationary pressures.

However, opinions remain split. Sonal Badhan, economist at Bank of Baroda, expects at least one 25-basis-point hike in December to prevent real rates from slipping into negative territory and to safeguard the rupee.

Dollar/rupee forward premiums declined in line with movements in the spot market, with the one-year implied yield easing 7 basis points to 2.79%.