Indian rupee drops on dollar demand from oil cos, nearly erases RBI-led gains

MUMBAI: The Indian rupee dropped against the U.S. dollar on Thursday, almost wiping out gains from the central bank’s measures to attract dollar inflows, as weak Asian cues and persistent dollar demand from oil firms weighed.

The Indian rupee opened lower at 95.52 per U.S. dollar and stayed under pressure since then, with bankers pointing to sustained dollar demand, particularly from oil companies, alongside usual mid-month flows.

The currency ended at 95.76, down 0.5%, barely holding on to any of the gain notched on Friday.

“The dollar had weakened post the release of yesterday’s U.S. inflation data, but reversed its weakness after news of escalation of conflict between U.S. and Iran,” Dhaval Shah, founder and managing director, De-Risk Forex Consultancy.

“Despite such strikes and a lapse of the ceasefire, we assess the war to be on a de-escalatory path as indicated by neutral reaction of many financial assets, mainly oil.”

U.S. strikes on Iran overnight dented hopes of a broader resolution to the conflict. In response, Iran said it would shut the Strait of Hormuz and conducted counter-attacks on U.S. military targets in Kuwait and Bahrain.

Iran closing the strait is a reversal from recent weeks, when Iran had allowed limited transit for ships from friendly nations.

Benchmark Brent crude rose more than 2% earlier in the day before trimming gains to trade marginally lower.

Shah said the recent upmove in USD/INR was a corrective rally, and added that a reversal will likely begin, with the pair easing to around 93.50 levels, supported by favourable RBI measures.

U.S. inflation data had limited impact on currency moves. Headline inflation rose to 4.2% on-year, its highest in over three years, while a softer-than-expected core reading kept near-term Federal Reserve rate expectations largely unchanged.