Rupee falls for third day as oil, outflows bite

The Indian rupee declined for the third consecutive trading session on Monday, extending recent losses amid mounting external and domestic pressures. The currency opened largely unchanged but weakened through the session to close at 95.1850 per US dollar, a fall of 0.3% on the day. Over the last three sessions, the rupee has dropped about 0.8%, underscoring persistent headwinds in the foreign exchange market.

Dollar purchases by importers were a key driver of Monday’s move, as companies sought to meet payment obligations and hedge against further currency weakness. A modest build-up in long dollar positions in the interbank market added to the downward pressure. With demand for dollars firm and support for the rupee less visible, the currency struggled to hold early levels.

Elevated oil prices remain a central challenge for the rupee. Brent crude has climbed around 13% over the past three weeks and was trading near $115 a barrel during Asian hours on Monday. For India, a major oil importer, sustained high crude prices raise concerns about a larger import bill and stronger inflationary pressures, factors that can weaken sentiment toward the rupee.

Portfolio flows have also turned adverse. Foreign investors have net sold nearly $5 billion of Indian equities so far in October, after net sales of $3.75 billion in September.

In previous sessions, the rupee had drawn support from Reserve Bank of India dollar sales, which helped temper volatility, and from inflows linked to the Jio Platforms IPO. These factors had assisted the currency in recovering from weaker levels and limited its downside. On Monday, however, such support was not evident, leaving the rupee more vulnerable to ongoing dollar demand from importers and market participants.

The lack of visible central bank intervention comes against a backdrop of declining foreign exchange reserves. India’s FX reserves fell for a sixth consecutive week through October 16, dropping by $5 billion to $721 billion. Bankers have attributed part of the reserves’ decline to earlier spot dollar sales and related operations aimed at supporting the rupee and managing liquidity.

External policy signals are another focus for currency traders. All eyes are now on the US Federal Reserve’s monetary policy decision due this week, with a widely expected pause in interest rates. Markets are particularly attentive to the Fed’s guidance on the future interest rate trajectory and whether further tightening remains possible this year.

The rupee’s recent moves highlight its sensitivity to shifts in global capital flows and commodity prices when regular support from domestic policy tools is less apparent. With high oil prices, equity outflows and uncertainty over the global rate path all in play, the currency remains exposed to further bouts of volatility in the near term.