Rupee rally tested by oil and risk aversion

The Indian rupee is expected to open in the 94.84–94.88 per dollar range after settling at 94.8175 on Thursday, signaling a pause following a rapid appreciation. The currency had climbed to a more than six‑week high near 94.30 in the previous session before reversing course, with bankers highlighting the speed of the move and its contrast with broader global market behavior.

This pullback comes on the heels of a strong run in which the rupee logged an eight‑session winning streak, advancing from around 96.60–96.70. That rally had positioned the rupee at its strongest level since the first week of September, underscoring how abrupt the latest setback appears to market participants.

The rupee’s earlier gains were underpinned by sizeable foreign inflows linked to the Jio Platforms IPO, which provided a notable source of demand for the currency. These IPO‑related flows pushed the rupee into a technically overbought zone, amplifying the impact of other supportive factors.

A series of measures by the Reserve Bank of India, along with active intervention, also helped bolster the currency. Traders noted that the unwinding of positions in the non‑deliverable forward market further fuelled the rupee’s rally, as market participants reduced bearish bets and added to the upward momentum.

Rising crude prices have reintroduced pressure on the rupee’s outlook. Brent crude (UKOUSD) has climbed to just shy of $115 a barrel amid worries about further supply disruptions following Houthi attacks on top exporter Saudi Arabia. Earlier, Brent (UKOUSD) rose 1.5% to edge past $110.50, reinforcing concerns about higher import costs for oil‑importing economies.

Oil remains a key threat to the rupee’s recovery, with at least one treasury official warning of a material risk that the currency could reverse its recent rally. The renewed climb in energy prices is now being weighed against earlier supportive inflows as traders reassess how sustainable the rupee’s gains may be.

The rupee’s challenges are unfolding against a backdrop of heightened risk aversion in global markets. Safe‑haven assets such as US Treasuries and the Japanese yen have strengthened, while US equities faced a selloff amid doubts over the outlook for artificial intelligence spending and its impact on economic growth.

The 10‑year US Treasury yield has fallen back below 5% and is down about 40 basis points from its recent peak, reflecting increased concerns about growth even as economic data point to ongoing inflation pressures. ING Bank said higher energy prices no longer automatically translate into expectations of persistently higher interest rates, adding another layer of complexity for currencies like the rupee.