The Indian rupee opened stronger on Thursday (July 2) at 94.93 against the US dollar, compared with Wednesday’s (July 1'ss) close of 95.25/$, marking a recovery of 32 paise in early trade.
The rebound was aided by a continued decline in global crude oil prices, which provided temporary support to the domestic currency after a sharp selloff in the previous session. However, traders cautioned that the relief may be short-lived as weakness in Asian currencies and rising US Treasury yields continue to weigh on sentiment.
On Wednesday (July 1), the rupee had plunged 0.6%, its steepest single-day fall in nearly three weeks, breaching the crucial 94.80–95.00 range that traders considered an important near-term support zone.
Market participants widely expected the Reserve Bank of India (RBI) to defend the 95 level, especially after signs of intervention in recent trading sessions. Dealers said the central bank was seen selling dollars near the 94.75 mark on Wednesday (July 1). But once the RBI stepped back from the market, aggressive stop-loss orders and weak regional cues accelerated the rupee’s fall beyond 95.
“Interbank traders did not expect 95 to be breached, let alone see it test 95.25. Now that it has happened, the underlying trend for dollar/rupee appears higher,” a currency trader at a private bank said.
Traders noted that while lower crude prices are fundamentally positive for India, a major oil importer, the current market direction is being driven more by global dollar strength and bond market dynamics than by oil alone.
Brent crude extended its decline after falling 1% overnight and slipping another 1% during Asian trading on Thursday (July 2), moving below the $71-per-barrel mark. The weakness followed reports of positive progress in indirect talks between the United States and Iran, with discussions focused on the Strait of Hormuz, a key global oil shipping route.
Meanwhile, pressure from overseas markets continued to build. Most Asian currencies weakened on Thursday (July 2) as investors reacted to rising US Treasury yields ahead of the closely watched US June payrolls report.
Bond markets also assessed hawkish comments from Federal Reserve Chair Kevin Warsh, who reiterated the importance of containing inflation, alongside recent US manufacturing and private payroll data that reinforced expectations of elevated interest rates for longer.
Currency dealers now expect the rupee to remain volatile, with the 95-per-dollar level likely to stay in sharp focus for both traders and the RBI in the sessions ahead.
-With Reuters inputs