Rupee Ends Week Little Changed as Rising Oil Prices Erase Earlier Gains

The rupee weakened for a second straight session on Friday as surging oil prices spurred risk aversion, erasing gains made earlier in the week and leaving the currency little changed, despite easing expectations of further US rate hikes.

The rupee opened the session marginally higher at 94.79 against the US dollar, but turned lower in early trades to hit a low of 94.9725. The currency ended 0.1% lower for the day at 94.9400, after depreciating by 0.4% on Thursday. It was little changed for the week, after rising 1.4% last week.

Oil prices rose in the latter half of the week including in Asian hours, with the benchmark Brent crude touching a more than five-month high, after attacks in Saudi Arabia by Yemen's Houthis stoked concern over further disruption to energy supplies from the region. The Brent crude contract was hovering around $114 per barrel, and is on track to post a third straight weekly surge.

While facing a shock from oil prices, investors have been reassessing technology trades and pulling back from riskier assets on worries about stretched valuations for artificial intelligence-led companies, leading to a selloff in stocks and rising demand for safe-haven US Treasuries.

The odds of a rate hike by the Federal Reserve have dropped to single digits from as high as 70% a month ago, which provided brief relief to the rupee in the early session, but oil worries outweighed the positive move. Energy prices have remained elevated, fueling concerns about inflation and imported energy costs, which hit current account calculations.

Currency traders also cited some residual flows linked to the Jio Platforms initial public offering. These flows, alongside the unwinding of dollar-long positions triggered by the Reserve Bank of India's latest measures, had lifted the currency to a six-week high of 94.30 per dollar on Thursday, before importers stepped up dollar purchases.

Commenting on the broader macroeconomic trend, Apoorva Javadekar, chief economist at Shriram Research, noted, "The RBI's recent FX measures are short-term stabilizers, not necessarily unjustified, but insufficient to alter the medium-term bearish outlook on the rupee."

"Fluctuations in global crude oil prices continue to exert direct pressure on domestic currency markets and current account calculations, often neutralizing positive monetary policy shifts. For businesses and entrepreneurs operating in India, this underlines the critical need to hedge against foreign exchange volatility and imported energy inflation. While regulatory interventions provide short-term stability, long-term strategic planning must account for external macroeconomic headwinds driven by geopolitical tensions and global commodity cycles." — Dr. Shishir Gupta, Founder & CEO, StartupLanes