Indian Rupee Gains 17 Paise Against US Dollar Amid Softening Greenback
The Indian rupee strengthened by 17 paise to reach 95.56 against the US dollar during early trading hours, supported by broad-based weakness in the greenback and gains in domestic equity benchmarks.
What Happened
At the interbank foreign exchange, the local currency opened at 95.57 before moving to 95.56 against the US dollar, reflecting a 17-paise gain from its previous close of 95.73. On Wednesday, the currency had settled higher by 1 paisa.
The US dollar came under selling pressure after the US Treasury disclosed plans to at least double its buyback volume of longer-dated government bonds. Starting September 9, repurchase operations will expand from $2 billion to $4 billion per session. This development lowered long-term US bond yields and compressed the currency’s yield advantage. Consequently, the dollar index dropped to its lowest mark since late May, recently standing at 98.82, down 0.01 per cent. Additional downward pressure on the dollar stemmed from tempered market expectations regarding future Federal Reserve policy tightening, despite inflation concerns recorded in the Fed’s July meeting minutes.
Key Highlights
- Exchange Rate Movement: The rupee appreciated 17 paise to trade at 95.56 per US dollar after opening at 95.57.
- US Treasury Operations: Bond buyback sizes for longer-dated maturities are set to increase from $2 billion to $4 billion per operation starting September 9.
- Dollar Index Level: The dollar index stood at 98.82, hovering near late-May lows.
- Crude Oil Headwinds: Brent crude climbed 0.32 per cent to $91.91 per barrel, maintaining pressure on the domestic import bill.
- Domestic Markets: The BSE Sensex rose 504.32 points to 77,416.16, while the NSE Nifty advanced 118.85 points to 24,198.55. Foreign institutional investors purchased a net of Rs 407.99 crore in Indian equities on Wednesday.
Why This Matters
The softening of the dollar index offers brief respite for the rupee; however, elevated global crude prices continue to act as a dampening factor. Amit Pabari, Managing Director at CR Forex Advisors, noted that reduced long-term yields combined with fiscal concerns lower the attractiveness of dollar-denominated assets. At the same time, Brent crude sustaining above $91 per barrel puts continuous pressure on India’s import requirements, which Pabari highlighted as a significant counterweight preventing a broader currency recovery.
What to Watch Next
According to technical ranges highlighted by CR Forex Advisors, the rupee maintains immediate support in the 95.30 to 95.50 band, with potential moves toward 96.20 to 96.50 if that threshold holds. Observers will also track the rollout of the expanded US Treasury bond buyback operations starting September 9 and further movements in crude futures.
Frequently Asked Questions
Why did the US dollar weaken against the rupee?
The greenback declined following an announcement by the US Treasury to double its repurchase of longer-dated bonds to $4 billion per operation, which pulled long-term yields lower and diminished the dollar’s yield advantage.
What is preventing stronger gains for the rupee?
Elevated crude prices remain a major headwind. With Brent crude futures trading at $91.91 a barrel, high energy import costs continue to counterbalance the benefits of a weaker US dollar.
What were the flows from foreign institutional investors?
Exchange data showed that foreign institutional investors were net buyers of Indian equities worth Rs 407.99 crore on Wednesday.
Source: timesofindia.indiatimes.com