Crude oil above the $100-a-barrel mark, persistent dollar demand and foreign fund outflows put fresh pressure on the Indian currency, while RBI intervention helped limit the decline

The Indian rupee came under renewed pressure on Thursday, depreciating 25 paise to 95.33 against the US dollar in early trade as Brent crude prices moved above the psychologically important $100-per-barrel level. Rising oil prices have raised concerns over India’s import bill and current account position, adding to the pressure on the domestic currency.

At the interbank foreign exchange market, the rupee opened at 95.15 against the US dollar before weakening further to 95.33. The currency had already declined 34 paise on Wednesday to close at 95.08 per dollar.

Rupee Breaches 95-Level Amid Strong Dollar Demand

Forex traders said elevated crude oil prices, persistent dollar demand and cautious investor sentiment were weighing on the rupee. The move beyond the 95-per-dollar level also triggered additional dollar demand and stop-loss activity in the market.

“Rupee's move beyond the psychologically important 95 level also triggered some additional dollar demand and stop-loss activity. However, the decline was contained by RBI intervention,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors.

The Reserve Bank of India’s intervention has emerged as an important factor limiting excessive volatility in the currency market. However, sustained pressure from crude oil and capital outflows could make it increasingly challenging to defend the rupee at current levels.

Crude Oil Crosses $100, Raising Import Bill Concerns

Brent crude, the global oil benchmark, was trading at around $100.98 per barrel in futures trade, despite being marginally lower by 0.23 per cent. Oil prices have remained elevated amid escalating US-Iran tensions and concerns over possible disruption to crude flows through the Strait of Hormuz.

For India, which imports close to 90 per cent of its crude oil requirement, a prolonged increase in crude prices could have significant macroeconomic implications.

According to CR Forex Advisors Managing Director Amit Pabari, every $10 increase in crude prices could add roughly $12–15 billion to India’s annual import bill. A sustained rise in oil prices could therefore widen pressure on the current account and increase demand for US dollars from oil-importing companies.

Higher crude prices can also influence domestic inflation, government finances and corporate profitability, particularly for industries that are heavily dependent on petroleum products and transportation.

FCNR Inflows No Longer Providing the Same Support

Another concern for the rupee is the fading support from FCNR-related dollar inflows. The currency had received some relief from foreign currency non-resident deposit-related flows, but that support has largely diminished.

With this temporary source of dollar liquidity weakening, the impact of higher crude prices and other external headwinds could become more visible in the currency market.

Pabari said the rupee is entering a phase in which temporary support from FCNR-related flows has largely faded while global headwinds are strengthening.

95.00 Becomes a Key Technical Level

The breach of the 95-per-dollar level is also technically significant for the currency market. Analysts are now closely watching whether USD/INR can sustain above this psychological threshold.

Pabari expects that sustained trading above 95 could increase the probability of the dollar moving towards 95.50, followed by 96.00 if the upward momentum continues.

This makes the 95 level an important near-term marker for currency traders. A sustained move above it could indicate further weakness in the rupee, while a retreat below the level could provide some relief to the domestic currency.

FII Selling Adds to Currency Pressure

The pressure on the rupee is also being amplified by foreign portfolio outflows from Indian equities. Foreign Institutional Investors sold Indian equities worth ₹582 crore on a net basis on Wednesday, according to exchange data.

Persistent FII selling generally creates additional demand for dollars as overseas investors convert their rupee proceeds into foreign currency. If equity outflows continue alongside elevated crude prices, the rupee could face a combination of trade-related and capital-flow pressures.

Indian Equities Remain Relatively Stable

Despite the weakness in the rupee, domestic equity markets remained marginally positive in early trade. The Sensex was up 38.07 points at 74,809.95, while the Nifty gained 9.85 points to 23,439.20.

However, elevated oil prices remain a key risk for the broader market. Higher crude can negatively affect India's trade balance and inflation outlook while increasing input costs for several sectors.

Oil marketing companies, airlines, paints, chemicals, logistics and other crude-sensitive businesses could remain particularly sensitive to movements in international crude prices.

Market Outlook

The rupee is likely to remain under pressure in the near term as crude oil stays above $100, dollar demand remains firm and foreign investors continue to withdraw funds from Indian equities. The 95-per-dollar mark has become a crucial technical and psychological level. A sustained move above 95 could open the way towards 95.50 and potentially 96.00, while RBI intervention and any moderation in crude prices could help limit further depreciation.

For equity investors, the combination of a weaker rupee, elevated crude prices and FII selling warrants caution. Market participants will closely track crude prices, US-Iran developments, RBI intervention, foreign fund flows and the dollar index for the next major directional signals.