Rupee Rebounds vs Dollar as RBI Tightens Rules; But Rising Oil Prices & Market Fall Keep Pressure On

The falling rupee finally regained some strength on Monday morning, opening stronger against the US dollar as fresh measures by the Reserve Bank of India (RBI) helped boost sentiment in the currency market.

The Indian rupee appreciated 1.4% to 93.47 against the US dollar, giving some relief after weeks of sharp weakness.

Why is the Rupee Rising Today?

The reason behind the rupee appreciation today is the RBI's latest step to tighten rules in the foreign exchange market. The central bank has capped banks' open positions in the onshore forex market at $100 million at the end of each trading day.
This new RBI Forex rule, which will come into effect from April 10, is expected to limit excessive speculation against the rupee and reduce volatility in the Indian forex market. So banks will no longer be able to take large one-sided bets on currency movement, which earlier added pressure on the rupee.

Instead of only selling dollars to support the rupee, the central bank is now focusing on controlling speculative positions at the source.

Rupee Performance lately

The weakness in Indian Rupee has been a major concern in recent weeks. The currency had slipped to record lows due to escalating tensions in West Asia, particularly the iran conflict impact on global markets.

"Over the past month, the Indian Rupee has weakened 2.77%, and is down by 10.18% over the last 12 months.becoming one of Asia's weakest currencies. RBI may have spent about $30 billion supporting the rupee, while forex reserves fell by about $15 billion over the same period, according to SBI Research cited by CNBC TV18.

Crude Oil Prices Add to Pressure

Even as the rupee recovered slightly, global cues are still challenging. Crude oil prices today surged due to ongoing geopolitical tensions. Brent crude rose to $115 per barrel up 2.23% at the time of writing while the WTI crude climbed to $101.49 per barrel up 1.86%.

Higher oil prices are a concern for India, as the country imports most of its crude. Rising oil prices typically weaken the rupee and widen the trade deficit.

"The concern of higher crude for a prolonged period is weighing heavily on the currency and overall macro outlook. Sustained dollar demand and energy-led inflation risks are keeping the rupee under stress. Technically, 94.00 now acts as key resistance, while the next crucial support is seen near 95.00. Bias remains weak unless crude prices show meaningful correction." as per Jateen Trivedi, VP Research Analyst, Commodity and Currency, LKP Securities.

Stock Market Also Under Pressure

The market today opened under pressure as uncertainty continued. Nifty 50 fell 370 points to open at 22,549.65. While the BSE Sensex dropped 1,047 points to open at 72,565.22. The geopolitical tensions due to the US Iran war and foreign investor outflows are weighing heavily on market sentiment.

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