Indian Rupee trades lower, RBI remains on standby to limit downside

The Indian Rupee (INR) remains vulnerable against the US Dollar (USD), close to its two-week low at around 95.75. The USD/INR pair has been under pressure as oil prices continue to remain higher, with discussions between the United States (US) and Iran regarding the reopening of the Strait of Hormuz, a critical chokepoint to almost one-fifth of global energy supply, remaining absent.

In the opening session, the MCX Crude Oil contract expiring on August 19 trades 0.6% higher to near Rs. 8,130. The crude oil price is close to its three-week high of Rs. 8,170 posted on Tuesday.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

Oil stays elevated as Strait of Hormuz standoff drags on

Analysts at BNY highlight that "hopes for a rapid reopening of the Strait of Hormuz faded." They note that US President Donald Trump has "said he will not seek to revive the expired U.S.–Iran truce, leaving the conflict and control of the vital shipping route unresolved," with Washington "demanding unrestricted passage through the strait, while Iran says traffic should be managed jointly with Oman."

BNY adds that "shipping activity remains heavily disrupted and fresh attacks near the strait have reinforced supply concerns." While Trump has argued that "U.S. leverage over Iran remains substantial" and "claimed back channels are open, though Tehran disputed this," the bank stresses that "the unresolved standoff keeps oil vulnerable to renewed escalation and prolonged disruption."

Against this backdrop, BNY concludes that "persistent Middle East tensions are keeping crude elevated, adding another supply-driven inflation risk to already stretched long-end markets."

On Tuesday, US President Trump also confirmed through a post on Truth Social that Washington is currently not involved in any discussions, nor scheduled, with Iran. Trump claimed that the Hormuz is under US control and fully operating.

RBI ends FCNR(B) swap window early as inflows swell and liquidity costs rise

In a surprise move, the Reserve Bank of India (RBI) has announced an early closure of its concessional FX swap facility for Foreign Currency Non-Resident (Bank) deposits on 31 August, “a month ahead of the original deadline.” According to the bank, the move follows a stronger-than-expected take-up, with Indian banks having attracted “USD52.3 billion of FCNR(B) deposits as of 13 August.”

Analysts at Commerzbank argue that the early closure likely reflects “diminishing benefits relative to the rising liquidity and balance-sheet costs of the scheme.” The sizeable inflows have “generated substantial rupee liquidity and supported demand for shorter-dated government bonds,” but the bank cautions that “the scheme is not costless.”

Looking ahead, Commerzbank expects the RBI to “rely primarily on spot and forward FX intervention if depreciation pressures return,” while any resort to rate hikes would “likely require a more persistent combination of INR weakness and inflation pressure.” In the near term, the bank highlights that “oil prices remain the key external driver for INR, given India’s dependence on crude imports.”

The RBI is seen to have intervened in spot and Non-Deliverable Forwards (NDFs) markets to support the depreciating Indian Rupee several times in a few months. Indian central bank was also expected to have stepped into the foreign exchange market this morning to shield the rupee from pressure due to persistently elevated oil prices amid uncertainty over the US-Iran war, Reuters reports.

FOMC Minutes awaited

Investors keenly await the Federal Open Market Committee (FOMC) minutes of the July policy meeting, which will be published at 18:00 GMT.

Analysts at Commerzbank expect the minutes from the Fed’s late-July meeting to be closely watched, as markets “may try to discern just how close the FOMC members ultimately were and still are to raising interest rates.” They note that the new Fed Chairman, Kevin Warsh, “intends to comment less on monetary policy and let the market do its job,” a stance that could increase the importance of the minutes as a window into the Committee’s thinking.

Commerzbank stresses that “the Fed – and the Fed alone – is responsible for price stability through its setting of the federal funds rate, not the market,” arguing that in the absence of “clear statements in the press release and at the press conference following the Fed meeting, the market might try to learn a little more about the discussions among FOMC members from the minutes.” Whether that effort yields much new information “remains to be seen,” particularly given that “following the Fed's last meeting in late July, the labor market and inflation figures had already come as a surprise with weaker-than-expected results,” leaving the market “no longer fully pricing in an interest rate hike by the end of the year.”

Against that backdrop, Commerzbank suggests that “should an interest rate hike in September have been a real possibility after all, the market could raise its rate hike expectations for the Fed slightly again and thereby provide support for the Dollar, provided the fundamentals warrant it.” However, they caution that “a fundamental reassessment of interest rate expectations – and the resulting sharp movements in the Dollar – is unlikely to occur,” implying that any reaction to the minutes is more likely to be incremental than transformative for US rate and currency markets.

Ahead of FOMC minutes, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.26% lower to near 99.38, close to its two-month low of 99.29 posted on Monday.

Technical Analysis: USD/INR stabilizes above 38.2% Fibo retracement at 95.63

USD/INR trades at 95.76, holding a mild bullish bias as it stays above the 20-period Exponential Moving Average (EMA) near 95.58. The pair has also reclaimed the 38.2% Fibonacci retracement at 95.63, suggesting that dips are being supported, while the Relative Strength Index (RSI) around 54 points to constructive but not overextended momentum.

On the topside, immediate resistance emerges at the 50.0% Fibonacci retracement near 95.87, followed by the 61.8% level at 96.12; a daily close above this latter barrier would open the way toward 96.46 and the recent swing high around 96.90. On the downside, initial support is seen at the 38.2% retracement at 95.63, reinforced by the 20-period EMA close to 95.58, with a deeper floor at the 23.6% retracement near 95.33 if sellers regain traction.

(The technical analysis of this story was written with the help of an AI tool. Know more.)