The Indian rupee rose against the US dollar on Tuesday, September 1, opening at 95.00 and extending gains from the previous session, according to CNBC TV18. The currency had gained 21 paise in the prior session, and the opening level marked a 16 paise rise from Monday's close of 95.16.

What Drove the Rupee's Gains

The Reserve Bank of India (RBI) is believed to have sold dollars before the spot market opened, according to traders and a foreign exchange broker, as reported by CNBC TV18. Such intervention increases dollar supply and can help limit sharp falls in the currency.

The currency is also benefiting from foreign exchange inflows under the RBI's special FCNR(B) scheme. The facility had mobilised $73 billion as of August 21, according to the central bank, CNBC TV18 reported.

Dollar flows linked to MSCI rebalancing provided additional support, according to Dilip Parmar, Senior Research Analyst at HDFC Securities, as quoted by CNBC TV18. In a separate report, The Financial Express quoted Dilip Parmer, research analyst at HDFC Securities, saying: "The rupee was supported by the RBI intervention and MSCI-related inflows. A softer dollar index also aided the currency, with these factors together driving the rupee's gains today (Monday)."

The Financial Express also reported that the rupee was the third top-performing currency among its Asian peers on Monday, after the South Korean won and the Japanese yen.

Pressures on the Currency

The gains come against a backdrop of higher crude oil prices and geopolitical tensions. CNBC TV18 reported that Brent crude rose 3.70% to $91.36 a barrel, as renewed concerns over West Asia supply risks raised worries about oil flows through the Strait of Hormuz. The Financial Express reported oil prices rose 2.32% to $91.38 a barrel on Monday amid fresh geopolitical tensions, putting pressure on the rupee and leading it to open lower.

Higher oil prices are negative for the rupee because India imports most of its crude requirement, CNBC TV18 noted. A rise in the import bill increases demand for dollars and can weigh on the domestic currency.

The dollar index, meanwhile, was at 99.52, down 0.18%, offering some relief to the rupee, CNBC TV18 reported.

Analyst Views on the Rupee's Trajectory

Dilip Parmer of HDFC Securities expects the rupee to trade in the range of 94.90-95.50 in the near-term, as reported by The Financial Express. He added: "Going ahead, the RBI intervention, geopolitical uncertainties, and the crude oil prices are likely to remain the key drivers of the rupee." He also said that inflows via FCNR(B) deposits are expected to support the currency.

Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, said, according to The Financial Express: "The RBI's strategy appears to be preventing excessive rupee weakness. The central bank is therefore likely aiming to keep the rupee range-bound, allowing some movement within a defined range while maintaining overall currency stability, with a slight bias toward appreciation."

Recent Performance and Outlook

The Financial Express reported that the rupee recorded a monthly gain of 0.23% in August, trading within a narrow band between 95.13 and 95.75. Over the past month, the daily movement averaged at 16 paise. In the calendar year so far, the rupee declined 6.4%, and over the past year, it fell 10.26%.

A stronger rupee can reduce the cost of dollar-denominated expenses, including overseas travel, education and certain imports, CNBC TV18 reported. It can also benefit Indian businesses that depend on imported crude, machinery or other raw materials. However, the impact on consumers depends on how long the currency remains stronger and how global commodity prices move, the report added.