Fading Fed hike bets, RBI backstop blunts oil pressure on rupee

The Indian rupee may gain traction at the opening bell on Monday, as investors temper expectations of a Federal Reserve rate hike next month following an unexpected job loss in the US economy. The Reserve Bank of India's (RBI) ongoing market presence is expected to provide additional support, helping shield the rupee from oil price hikes amid uncertainty surrounding the Strait of Hormuz's reopening.

Traders anticipate the rupee to open within the 95.14-95.16 range, up from its Friday settlement of 95.2075 against the dollar. The Indian currency has been recovering for two weeks, buoyed by the RBI's regular interventions. Despite oil prices being volatile, Brent crude, currently at $84.50, is significantly below its recent peak of $100, providing some cushioning for the rupee.

The RBI's recent intervention on Friday, where it stepped in at the market open, highlights its willingness to prevent oil price uncertainty from causing the rupee to suffer unchecked dollar depreciation. A bank currency trader noted that the RBI's intervention at present levels implies a desire to push the dollar/rupee lower. However, how far the rupee can fall depends on oil prices and the level of interest in selling dollars at these rates.

Oil prices surged on Monday due to the uncertainty surrounding the Strait of Hormuz's reopening, with Iran reporting an agreement with Oman on new shipping lanes nearing completion, while the US still needs to meet certain Iranian conditions. As investors reduced their expectations for a Fed rate hike at the upcoming meeting following Friday's data showing a sharp decline in US jobs, Fed funds futures now suggest a 44% probability of a rate increase in September, down from 55% before the data release.