Mumbai: The Indian rupee strengthened slightly against the US dollar on Monday as falling oil prices and dollar sales by foreign banks provided some support, while continued demand for dollars from Indian importers limited the gains.
The rupee was trading at 95.7925 to the dollar, up about 0.1 percent from Friday's close of 95.8725. Other Indian market reports put the opening level at about 95.81 to the dollar.
Brent crude, the international benchmark for oil prices, fell about 2 percent to around $101.70 a barrel. The decline gave the rupee some relief because India imports a large share of the oil it consumes. Higher oil prices increase India's import bill and can increase demand for dollars, putting pressure on the rupee.
Oil prices have remained highly sensitive to developments in the conflict involving Iran and the United States. Prices eased on Monday as investors considered the possibility of diplomatic progress during the United Nations General Assembly in New York.
US President Donald Trump has said he would be open to meeting Iranian President Masoud Pezeshkian, who is expected to be in New York for the UN meeting. However, the two sides also exchanged fresh threats over the weekend, leaving uncertainty over the conflict and its impact on energy supplies.
The rupee closed at 95.8725 to the dollar on Friday, down 0.3 percent for the week.
Traders are closely watching whether oil prices can remain under control and whether foreign capital flows can provide additional support. The large initial public offering by the National Stock Exchange of India is also being watched because it could generate foreign currency inflows and support the rupee.
The NSE offering, worth about Rs 22,569 crore, or roughly $2.3 billion, opened for subscription on September 17 and closes on Monday. The price band has been set at Rs 1,700 to Rs 1,785 per share.
The IPO had been fully subscribed by Friday. By 10:41 am on Monday, investors had placed bids for 12.99 crore shares against 8.86 crore shares offered, giving the issue a subscription level of 1.47 times. The non institutional investor portion was subscribed 2.34 times, while the qualified institutional buyer portion was subscribed 1.83 times. The retail portion stood at 0.88 times at that stage.
The IPO is an offer for sale, meaning the money raised will go to existing shareholders selling their shares rather than directly to the National Stock Exchange.
The Reserve Bank of India also remains an important factor in the currency market. Traders expect the central bank to continue managing sharp movements in the rupee through its foreign exchange operations if necessary.
India's foreign exchange reserves stood at about $780.8 billion in the week ended September 11, according to Reserve Bank data. The reserves fell by about $4.9 billion during that week, with declines in foreign currency assets and the value of gold reserves.
The central bank is also dealing with excess liquidity in the banking system. Indian banks raised about $127 billion through a special foreign exchange mobilisation scheme, leaving the banking system with a large amount of surplus cash.
To absorb some of that liquidity, the Reserve Bank has been selling government securities. It sold shorter duration government bonds worth Rs 500 billion last week and scheduled another sale worth Rs 250 billion for Monday.
The liquidity operation is also being watched by bond investors. India's benchmark 10 year government bond yield ended Friday at 7.0686 percent, after rising for five consecutive weeks.
The rupee is facing several competing forces. Lower oil prices and possible foreign investment inflows are providing some support, while high energy costs, importer demand for dollars, global interest rates and continuing geopolitical risks are limiting gains.
Markets are now closely watching developments in the Middle East, oil prices, foreign investment flows and the Reserve Bank's response as investors assess the direction of the rupee in the days ahead.