Rupee opens 1 paise lower at 94.69 against US dollar

The Indian rupee opened marginally weaker at 94.69 against the US dollar on Tuesday, June 23, slipping by 1 paise despite support from softer crude oil prices amid progress in US-Iran negotiations.

According to a Reuters report, traders said Monday's decline in the rupee was not driven by any major flow-related activity and came as a surprise to the market, as it went against broader expectations.

Currency dealers said investor focus has gradually shifted away from oil prices toward the US Federal Reserve's policy outlook. Expectations of a possible Fed rate hike in September are beginning to weigh on Asian currencies, including the rupee.

"It appears the risk for the rupee is now shifting from oil to the Fed," a currency trader at a private sector bank told Reuters. The trader noted that with Brent crude largely remaining below the $80-per-barrel mark, elevated US Treasury yields have emerged as a bigger concern for the domestic currency.

Exporters have stepped up hedging activity in recent sessions, according to Reuters, although underlying demand for dollars remains strong.

US Treasury yields rose on Monday, with the benchmark two-year yield touching a 16-month high as investors priced in the possibility of further interest-rate hikes this year. Fed funds futures currently indicate nearly a 75 per cent probability of a rate increase by September, adding pressure on emerging-market currencies.

Despite these concerns, several factors continue to support the rupee. The latest RBI Bulletin noted that crude oil prices moderated in June despite ongoing fragility in global energy supply chains.

Analysts said the US decision to grant a 60-day waiver on Iranian oil sanctions, along with progress in US-Iran peace negotiations in Switzerland, has eased fears of supply disruptions. As a result, Brent crude prices have fallen below $80 per barrel, reducing pressure on India's import bill and external balances.

Experts have also highlighted encouraging signals from the Reserve Bank of India's Real Effective Exchange Rate (REER) data. The rupee's REER eased to 86.2 in May from 87.76 in April, indicating that the currency remains undervalued relative to its trading partners. This suggests the rupee could have room for appreciation if global conditions remain favourable.

However, gains may be limited by a strengthening US dollar. The Dollar Index has climbed to around 101, its highest level in more than a year, supported by the Federal Reserve's hawkish stance and lingering uncertainty over the durability of the US-Iran peace process.

Market participants say that while an undervalued rupee offers a competitive advantage, the benefits will materialise only if India's export sector is able to capitalise on it.

Attention is now turning to trade discussions between India and the United States. The arrival of the top US trade negotiator in India this week is being closely watched as both countries work towards finalising an interim trade agreement.

Experts believe a favourable deal could boost India's export competitiveness, attract greater foreign investment and strengthen the country's medium-term external position. India is also reportedly seeking a strategic edge over regional manufacturing and export rivals such as Vietnam and other ASEAN economies.

According to Amit Pabari, MD at CR Forex Advisors, 94.30 continues to act as a strong support level, having held firm on multiple occasions in recent sessions. On the upside, 94.80 remains the immediate resistance level, with a breakout potentially opening the path toward 95.20.

While easing oil prices and improving capital inflows remain supportive for the rupee, a stronger US dollar is likely to keep the USD/INR pair volatile in the near term.