Rupee Gains on Dollar's Weakness, but Oil Prices Keep it Grounded

The Indian rupee is expected to open slightly stronger on Thursday after the US dollar hit a three-month low. This move follows a US Treasury plan to expand buybacks of longer-dated government bonds, easing nerves in the bond market.

Traders anticipate the rupee will open around 95.62-95.66 per dollar versus Wednesday's close, but a lasting rally is not expected. The dollar index fell 0.88% on Wednesday after the Treasury announced its plan to improve trading conditions in longer-maturity Treasuries.

Analysts emphasize that this move is not 'quantitative easing', and ING notes that the support is effectively funded by issuing more short-term debt. Despite this, energy prices are doing some of the dollar's lifting: Brent crude is hovering near $92 a barrel as investors weigh the US-Iran conflict and shipping risks through the Strait of Hormuz.

India's reliance on oil imports means that pricier crude often leads to more routine dollar buying from importers and hedgers, which can quickly absorb any early dip in USD/INR. As a result, even when the broad dollar is weakening, oil can push in the other direction for India.