The Indian rupee opened 19 paise higher at 93.74 against the US dollar on Wednesday, compared with its previous close of 93.93 on Monday. This rise was driven by a sharp correction in crude oil prices, improved foreign portfolio flows, and gains in the offshore non-deliverable forward (NDF) market.
A key factor supporting the rupee has been the correction in crude oil prices. Brent crude, which had climbed above $115 per barrel amid concerns over the US-Iran conflict, has retreated sharply as expectations of further military escalation have eased. Prices were hovering around $92 per barrel in early Asian trade on Wednesday, after briefly slipping below $90 earlier this week.
For India, lower crude prices are particularly important as they reduce the dollar requirement of oil-importing companies. A sustained decline in oil prices can also ease pressure on the country's import bill and current account, reducing one of the key sources of structural demand for dollars in the domestic foreign exchange market.
Foreign portfolio investor (FPI) flows have provided another source of support. Dealers expect FPIs to continue selling dollars as foreign investment interest in Indian markets improves. Such inflows increase the supply of dollars in the domestic market and help offset demand from importers.
The dollar index, which measures the greenback against a basket of six major currencies, was trading around 102.24. However, the rise in US Treasury yields following stronger-than-expected inflation data has emerged as a potential headwind for emerging market currencies. Higher US yields make dollar assets relatively more attractive and could limit the rupee's gains.
Market participants expect the rupee to trade in a range of 93.25-94.25 during the day. The 93.50 level is likely to be an important point for importers looking to cover their dollar requirements, while levels above 94 could attract dollar selling from exporters seeking to hedge their receivables.