Indian rupee steady at 95.40 as RBI counters oil-driven dollar demand

The Indian rupee opened 4 paise higher at 95.40 against the US dollar on Wednesday, though underlying market sentiment remained distinctly cautious. The marginal gain reflects active intervention by the Reserve Bank of India, which has sold dollars through state-run banks in both trading sessions this week to contain losses.

The central bank's support is being rapidly absorbed by structural dollar demand from domestic importers. As Brent crude surges toward $90 a barrel—having gained roughly 7% this week—Indian businesses are scrambling to hedge their energy costs. This corporate demand for dollars is effectively neutralizing the RBI's efforts and keeping the rupee pinned above the 95 mark since last Wednesday.

Escalating oil prices represent a significant macroeconomic risk for India, threatening to widen the current account deficit and complicate domestic inflation management. The situation is worsened by geopolitical uncertainty surrounding the US-Iran conflict, which is driving a broader selloff across Asian currencies.

Global factors are also working against the rupee. The dollar index is holding firm near 99.80, recovering from a two-month low, while US 10-year Treasury yields remain elevated at roughly 4.7%. These movements reflect growing market conviction that elevated crude prices will keep inflation sticky in the United States.

Immediate market direction hinges on the upcoming US consumer price index release. A hotter-than-expected inflation print would strengthen expectations for a September Federal Reserve rate hike, likely pushing Treasury yields and the dollar higher. Such an outcome would severely test the RBI's capacity to defend the rupee without depleting reserves.

Foreign capital flows offer a mixed signal for Indian assets. Foreign portfolio investors have purchased approximately $1.8 billion in Indian equities and $0.2 billion in debt so far in August, providing some near-term support. However, these inflows follow massive withdrawals, with 2026 year-to-date outflows totaling around $16.5 billion, already eclipsing the full-year figure for 2025.

Analysts view the recent buying as insufficient to signal a sustained reversal in foreign sentiment. "The 95.00–95.10 zone remains a key support for USD/INR," said Amit Pabari, managing director at CR Forex Advisors. "With the rupee breaking above 95.30 on Tuesday, the pair is now more likely to move towards 95.80 and subsequently 96.20." Pabari added that a hot US CPI print would act as a trigger for a move toward that higher range.