Indian Rupee Weakens on External Pressures and RBI Intervention

The Indian rupee started trading on Tuesday (October 6) at 96.31 against the US dollar, nearly unchanged from Monday's close of 96.30. The Reserve Bank of India (RBI) is expected to keep intervening in the foreign exchange market to slow the rupee's decline. By early trade, the currency had weakened to 96.41 per dollar.

Over the past month, the rupee has faced pressure due to rising oil prices, higher US Treasury yields, and foreign equity outflows, all boosting demand for the dollar. The dollar index has climbed above 102, supported by a weaker euro and rising longer-dated US Treasury yields. The euro has been weighed down by political uncertainty and fiscal concerns in the euro zone.

The 10-year and 30-year US Treasury yields have reached fresh 24-year highs as US government bonds continue to sell off. Data released on Monday (October 5) showed resilient US services-sector activity in August, with businesses paying more for inputs, signaling persistent inflationary pressures.

The RBI has been active in the foreign exchange market, selling dollars to temper the rupee's decline. Traders expect the central bank to continue smoothing volatility rather than defending a specific level. A bank currency trader suggested the rupee could eventually move toward 97 per dollar if underlying pressures persist, noting that recent RBI intervention does not indicate a firm line at a particular level.

A weaker rupee increases the domestic cost of dollar-denominated purchases, including crude oil, for Indian importers. For consumers, sustained rupee weakness can raise the cost of overseas travel, education, and other foreign currency-linked expenses.