India Rupee Halts Losses

The Indian rupee hovered around 95.2 per dollar, pausing recent losses after multi-week lows as investors assessed persistent dollar demand, Reserve Bank of India intervention, and broader weakness in Asian currencies. The local currency's outlook weakened after it fell nearly 1% last week, pressured by arbitrage-related outflows, routine importer demand for US dollars, and a stronger greenback amid expectations that the Federal Reserve could keep interest rates higher for an extended period. Although the dollar eased following a softer-than-expected June employment report, traders expect only limited relief for the rupee. While lower crude oil prices offered support, persistent dollar demand has limited the rupee's recovery, even as the central bank continues to smooth volatility through dollar sales. Globally, attention is on the Fed's latest meeting minutes and the upcoming US inflation report, both of which could shape interest rate expectations and the dollar's direction.

The Indian rupee hovered around 95.2 per dollar, pausing recent losses as the greenback softened on softer-than-expected labor data. June payroll growth slowed sharply while gains for the previous two months were revised lower, prompting traders to reduce the probability of a September Federal Reserve rate hike to around 53%, down from 75% before the report. The weaker dollar lifted most Asian currencies, providing support for the rupee. Despite the improved sentiment, investors continue to monitor merchant and portfolio flows after the rupee fell to a three-week low in the previous session, pressured by arbitrage-related demand and importer dollar purchases. Earlier this week, the currency was supported by interventions from the RBI in both the onshore spot and offshore non-deliverable forwards markets. However, those efforts were largely offset by persistent dollar demand from foreign banks and oil companies, as well as continued foreign investor outflows from Indian equities.

The Indian rupee strengthened to around 94.9 per dollar, retreating from three-week lows as another decline in crude oil prices supported sentiment. Brent crude extended its losses after falling 1% on Wednesday and slipping another 1%, dropping below USD 71 per barrel following signs of progress in indirect US-Iran negotiations and easing concerns over disruptions to oil supplies through the Strait of Hormuz. Although lower energy prices offered temporary relief by easing concerns over India's import bill, traders remained cautious, citing higher US Treasury yields and a stronger dollar that kept most Asian currencies under pressure. Earlier this week, the Reserve Bank of India was reportedly seen selling US dollars near the 94.75 level, but the currency continued to weaken after the intervention eased. Investors also assessed recent US economic data and remarks from Federal Reserve officials, reinforcing the importance of containing inflation, supporting demand for the US dollar.