Rupee Supported by Foreign Fund Inflows Despite Oil Price Headwinds
The Indian rupee found some support this week as foreign capital flowed into domestic stock markets, according to forex traders. That buying interest helped offset part of the downward pressure caused by rising crude oil prices.
How foreign inflows cushion the currency
When overseas investors buy Indian equities, they first convert foreign currency into rupees to complete the transactions. That conversion increases demand for the rupee and can help strengthen or stabilise the currency in the short term. Traders say even modest portfolio inflows can be meaningful during periods of volatility.
Why crude oil keeps the rupee under pressure
India imports a large share of its crude oil needs. Higher global oil prices raise the country’s import bill, increasing demand for dollars and adding downward pressure on the rupee. Rising oil costs can also fuel inflation and complicate policy choices for the central bank, which in turn affects market sentiment.
Factors market participants are watching
- Portfolio flows: Continued foreign investment into equities or debt can provide ongoing support for the rupee.
- Crude oil trends: Sustained increases in oil prices are likely to keep pressure on the currency.
- Global dollar moves: A stronger US dollar typically weighs on emerging market currencies, including the rupee.
- Domestic data and policy: Inflation numbers, economic growth, and any central bank action will influence currency direction.
In short, portfolio inflows can provide a buffer for the rupee, but the longer-term path will depend on how crude oil prices and global financial conditions evolve. Traders and investors will be closely watching these variables for clues on the currency’s next move.