Rupee Posts Sharpest Gain in Three Weeks on Cheaper Oil, FII Buying

The Reserve Bank of India likely absorbed some of the dollar inflows to prevent excessive volatility, traders said. The central bank has been active in the spot and forward markets in recent months, smoothing sharp moves rather than defending a specific level.

For the rupee to sustain gains, oil prices need to stay low and FII flows need to remain positive. A rebound in crude or a reversal in foreign fund flows would renew depreciation pressure, traders said. The next catalyst for the rupee will be the direction of oil prices and the pace of FII flows. A sustained decline in crude could push the rupee below 94.50, while a rebound would test 95.50 again, they said.

The rupee's move also comes ahead of key U.S. economic data later this week, including the Federal Reserve's preferred inflation gauge. A soft print would reinforce bets on a September rate cut, further weakening the dollar and supporting the rupee. A hot number would do the opposite, traders said.

For now, the rupee's sharp gain offers relief to importers who had been hedging at higher levels. Exporters, meanwhile, may delay conversions in hopes of a further rally. The 94.80–95.00 zone now becomes a support band, with resistance at 94.50, traders said.