India's Central Bank Steps In as Rupee Fights Oil and Dollar Demand

The Indian rupee gave up modest early gains on Tuesday to trade nearly flat, as central bank intervention offset pressure from corporate dollar demand and rising oil prices. The currency touched a session high in early trading before easing back.

Brent crude rose for the first time in five sessions, with investors watching for developments on potential talks at the United Nations General Assembly this week. Tehran and Washington exchanged threats on Sunday, though U.S. President Donald Trump said he would be open to meeting Iran's president, who is expected in New York this week for the U.N. meeting.

Hedging stays elevated

Corporate dollar hedging has remained elevated amid the uncertainty, while pressure from higher import prices has also shown up in near-tenor payments, an FX salesperson at a large foreign bank said. Traders pointed to dollar sales by state-run banks in the band on Tuesday, part of persistent central bank intervention that has helped contain losses.

The central bank also likely conducted swaps, traders said, a move that would drain rupee liquidity from the banking system. The swaps cushioned dollar-rupee mid-to-far-tenor premiums, lifting them off the day's low.

Regional markets mixed

Asian currencies were mixed, while technology stocks powered broader stock markets higher. Mumbai equities lagged, hurt by the lack of AI-linked wagers that have driven regional shares higher.

“Price action has reinforced our view that near-term risks for the dollar remain skewed to the upside,” analysts said in a note.