Rupee Flat Despite Oil Slump as Importers Rush to Hedge

The Indian rupee surrendered early gains to end nearly flat, as aggressive dollar buying by importers and state-run banks overwhelmed the tailwind from tumbling crude oil prices.

The currency closed at 95.3375 per US dollar, barely moved from Friday's close of 95.38, after touching a three-week high of 95.1275 in morning trade. The rally proved short-lived once corporate hedging demand gathered pace.

Oil Relief Meets a Wall of Dollar Demand

The rupee initially surged as Brent crude prices slumped, offering a boost to the import-dependent Indian economy. But that momentum collided with heavy dollar bids from state-run banks, which traders said were likely acting on behalf of clients.

“There were very strong dollar bids around 95.15 levels from state-run banks, likely on behalf of clients,” a trader at a Mumbai-based bank told Reuters. The buying erased the rupee's early gains and pushed it back toward its previous close.

Geopolitics drives the crude swing

The sharp drop in oil prices was triggered by US President Donald Trump calling off an imminent attack on Iran, signalling willingness to pursue a negotiated deal. Talks between Washington and Tehran were scheduled for Monday, lifting global equities including stocks in Mumbai.

Trump has repeatedly threatened to escalate the war on Iran that he launched alongside Israel in late February, only to allow more time for negotiations. Those talks have so far failed to produce a comprehensive agreement.

Yen Surges as Tokyo and Washington Intervene

The dollar index held steady at 99.7 while most Asian currencies gained ground. The Japanese yen firmed to a three-month high after the US and Japan confirmed joint intervention to support the weakening currency.

Japan may have spent as much as $36.58 billion buying yen in the latest round of intervention, according to data cited by Reuters. The coordinated action underscored growing discomfort among major economies with persistent dollar strength.

RBI Policy Decision in Focus

Attention now turns to the Reserve Bank of India's monetary policy decision, due on Wednesday. Economists widely expect the central bank to keep policy rates unchanged, maintaining its cautious stance amid global uncertainty.

The RBI's decision will be closely watched for signals on how the central bank views the rupee's trajectory and whether it sees imported inflation risks easing on the back of lower oil prices.

What it Means for Traders

FX advisory firm IFA Global recommended that exporters hedge their foreign exchange exposure cautiously and only to the extent of in-hand orders. Importers were advised to use current levels to lock in protections.

The contrasting advice reflects the tug-of-war defining the rupee's trading range: geopolitical relief pulling it stronger, and relentless importer demand capping any sustained rally.

Reported by Jaspreet Kalra and edited by Mrigank Dhaniwala for Reuters, syndicated by The Economic Times on August 3, 2026.