Indian rupee set to slip on oil pressure, relies on RBI support

Mumbai: On Tuesday, the Indian rupee is expected to open weaker, grappling with higher oil prices and stalled U.S.-Iran peace talks, traders said. The currency is forecast to open within the 95.35-95.40 range, having closed at 95.30 to the dollar on Monday. The rupee has been fluctuating between 95.10-95.30 over the past three sessions, with significant dollar demand at present levels weighing on it.

The Reserve Bank of India (RBI) has frequently sold dollars near 95.25, but the local currency still declined, highlighting the pressure from importer hedging and rising oil prices. RBI has been "systematically" on the offer in the dollar/rupee pair, and without support from the central bank, the pair could easily exceed 95.50, a currency trader at a bank stated.

"Today, the same phenomenon will unfold, with the inherent dollar demand needing to be absorbed by the RBI," the same trader added. The U.S.-Iran impasse, coupled with uncertainty over a potential peace deal and the reopening of the Strait of Hormuz, drove Brent crude prices up by 5% on Monday. Oil market volatility remains high, depending on news about any advances in the peace talks that could result in the Strait of Hormuz's reopening.

U.S. President Donald Trump presented his own conditions for a peace deal on Monday, responding to Iran’s list of demands. Brent crude prices continued to climb on Monday's Asian trading session, nearing the $88 per barrel mark. The surge in oil prices contributed to a rise in U.S. Treasury yields, with the 10-year yield jumping to approximately 4.70%, reversing the decline sparked by softer U.S. jobs data.