Rupee Holds Near One-Month High as RBI Steps In to Curb Oil-Led Pressure

The Indian rupee traded in a narrow band on Friday, hovering close to a one-month high, as likely intervention by the central bank helped offset the drag from firmer crude oil prices. The currency was at 95.2650 per dollar by mid-morning, barely changed from its previous close of 95.22.

Traders said state-run banks were seen selling dollars, most probably on behalf of the Reserve Bank of India, which blunted the pressure that higher oil prices would have otherwise exerted on the currency. Earlier in the week, the rupee had strengthened to 94.9175 per dollar.

Oil prices climbed on concerns over the Strait of Hormuz, after Iran, in coordination with Oman, proposed restricting vessels deemed hostile from the strait and imposing heavy fines for violations. The development added to geopolitical unease in the region.

Demand for dollars at the central bank's daily reference rate, or the fix, also weighed on the rupee, with the premium hovering around 0.70 to 0.80 paisa. Domestic equities slipped and the benchmark bond yield inched higher, reflecting a cautious mood ahead of the weekend.

Attention now turns to the U.S. non-farm payrolls data due later in the day, which could offer clues on the Federal Reserve's next policy move. Economists expect a rise of 80,000 jobs in July, following a 57,000 gain in June, with the unemployment rate seen steady at 4.2%.

Market participants are pricing in nearly a 60% chance of a rate hike next month, after a report suggested the Fed chair was open to a September increase depending on incoming data. Analysts noted that with the Federal Open Market Committee leaning hawkish, the labour market has become a more critical factor for the central bank's decision-making.