Rupee opens higher at 94.39 against dollar: RBI support, oil and Fed outlook explained

The Indian rupee opened 10 paise higher against the US dollar on Monday (September 7), even as rising crude oil prices and expectations of a possible US Federal Reserve rate hike continue to pose challenges for the currency.

The rupee opened at 94.39 per dollar, compared with Friday’s (September 4's) close of 94.49, marking an appreciation of 10 paise.

The opening move comes after the rupee gained nearly 1% last week, helped in part by the Reserve Bank of India’s continued presence in the foreign exchange market. Traders said the central bank’s intervention has helped limit the pressure on the rupee from higher oil prices and a stronger dollar outlook.

Why the rupee is gaining despite higher oil

Crude oil prices remain a key risk

for the Indian currency. Brent crude rose to around $97 a barrel after escalating tensions involving the US and Iran raised concerns over potential disruptions to oil supplies through the West Asia.

Higher crude prices are generally negative for the rupee because India imports most of its crude oil requirement. A sustained rise in oil prices can increase the country’s import bill and demand for dollars, putting pressure on the domestic currency.

However, traders said the RBI’s recent market presence has helped absorb some of this pressure. The focus now is on whether the central bank will continue to support the rupee at a similar pace.

Fed rate outlook adds another layer of pressure

Expectations of a US Federal Reserve rate hike at its September 15-16 meeting have also strengthened following stronger-than-expected US jobs data.

US nonfarm payrolls increased by 162,000 last month, well above economists’ estimate of 56,000. The previous month’s payroll figure was also revised higher, with a reported fall of 23,000 replaced by an increase of 21,000.

Stronger employment data can reduce the urgency for the Fed to cut or keep rates unchanged, potentially supporting the US dollar and putting pressure on emerging-market currencies such as the rupee.

ING Bank said the latest jobs data had increased expectations of a September rate hike, although the final decision would depend on the US inflation data due later this week.

For the rupee, the immediate picture therefore remains a balance between RBI support, elevated crude prices and changing expectations around US interest rates.