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The Indian rupee continued to trade close to its two-month high on Wednesday, September 2, despite renewed pressure from rising crude oil prices and higher US Treasury yields.

The domestic currency opened 6 paise stronger at 94.89 against the US dollarcompared with its previous close of around 94.95 on Tuesday, September 1. The rupee’s resilience comes after a three-session winning streak that pushed it to a two-month high of 94.80 per dollar during Tuesday’s trading session.

The recent performance has placed the rupee among the relatively stronger Asian currencies, even as global developments continue to create challenges for emerging-market currencies.

RBI Intervention Helps Support the Rupee

The rupee’s recent gains have come despite several external risks. Market participants said continued intervention by the Reserve Bank of India (RBI)along with dollar selling by foreign banks linked to capital flows, has provided important support to the currency.

Traders are now closely watching whether the central bank will continue to meet or absorb growing dollar demand, particularly as crude oil prices rise.

According to a currency trader at a bank, the RBI is currently one of the most significant sources of dollar selling in the market. This makes the central bank’s actions particularly important if the rupee is to maintain its recent strength.

Why Higher Crude Oil Prices Put Pressure on the Rupee

Crude oil prices jumped sharply during Asian trading after renewed exchanges of strikes between the United States and Iran raised concerns about potential disruptions to global energy supplies.

Brent crude futures climbed to approximately $95.50 per barrelincreasing concerns for countries that depend heavily on imported oil.

For India, higher crude prices can create additional pressure on the rupee because the country imports a substantial portion of its oil requirements. When oil becomes more expensive, India’s import bill can increase, leading to greater demand for US dollars and potentially weakening the domestic currency.

A prolonged increase in crude prices could therefore become an important challenge for the rupee in the coming weeks.

Rising US Treasury Yields Add Another Challenge

The increase in oil prices has also contributed to higher US Treasury yields.

When US bond yields rise, dollar-based investments can become more attractive to international investors. This can strengthen demand for the US dollar and create pressure on emerging-market currencies, including the Indian rupee.

As a result, the rupee is currently facing pressure from both rising energy costs and stronger global demand for dollar-denominated assets.

Foreign Dollar Flows Provide Additional Support

Despite these challenges, strong foreign currency inflows have helped the rupee remain stable.

Banks have increased their mobilisation of deposits through the RBI’s concessional FCNR(B) swap windowadding more foreign currency liquidity to the financial system.

These inflows have strengthened the RBI’s capacity to manage dollar demand and provide support to the rupee during periods of market volatility.

On September 1, the rupee gained around 0.24% and closed near 94.94 per US dollaraccording to Abhishek Bisen, Head of Fixed Income at Kotak Mutual Fund.

MSCI-Linked Inflows Boost Currency Sentiment

Bisen said bank-led dollar selling linked to MSCI index rebalancing was one of the factors supporting the rupee.

The inflows were estimated at around $5 billionalthough approximately $3.5 billion in associated outflows was still pending.

The currency has also received support from stronger FCNR(B) deposit mobilisation. According to estimates cited by Bisen, cumulative FCNR(B) deposits had reached around $100 billion.

These inflows helped cushion the rupee against pressure created by rising Brent crude prices, geopolitical uncertainty in West Asia and expectations surrounding a possible interest rate increase by the US Federal Reserve.

Strong GDP Growth Improves Market Confidence

India’s stronger-than-expected economic growth has also contributed to improved sentiment around the domestic currency.

India’s economy expanded by 7.8% in the first quarter of FY 2026-27providing another positive signal for investors and financial markets.

The rupee had also gained around 0.2% during Augustreflecting improving support from capital flows and domestic economic fundamentals.

What Lies Ahead for the Indian Rupee?

For now, the Indian rupee is being influenced by two competing forces.

On one side, strong foreign currency inflows, bank-led dollar selling and RBI intervention are helping the rupee remain close to its recent highs.

On the other hand, rising crude oil prices, elevated US Treasury yields and geopolitical tensions continue to pose risks.

The RBI’s approach to managing dollar liquidity and intervening in the foreign exchange market could therefore play an important role in determining the rupee’s near-term direction.

If oil prices continue to rise, pressure on the currency could increase. However, sustained capital inflows and continued support from the RBI may help the rupee maintain stability in the near term.