Rising oil, US yields add to rupee pressure after RBI move

The rupee is likely to start the week on a weaker note, with surging oil prices and elevated US bond yields exacerbating the pressure on the currency from the central bank, potentially prompting the Reserve Bank of India (RBI) to invoke its swap facility for deposits raised by non-resident Indians sooner than anticipated. The currency opened at 95.6025 per dollar on Monday, but traders anticipate a range between 95.68 and 95.72 as Brent crude prices breached the $91-a-barrel threshold, while the 30-year US Treasury yield surged to its highest level in over two decades.

The end of a US-Iran truce saw Iran adopt a fully offensive military stance, further boosting oil prices. This price surge, in turn, contributed to the rise in US Treasury yields. President Donald Trump asserted that Iran should yield to international pressure. The joint effect of oil and US yields has intensified the rupee's downward pressure, following the RBI's abrupt decision to reduce the foreign-currency deposit swap window by a month to August 31.

The central bank's move caught most bankers off guard, leading the rupee to dip below the 95.50 mark on Monday, despite the dollar's overall weakness. Central bank efforts to prevent further decline proved futile. The rupee already confronted a challenging scenario, and the RBI's decision has significantly worsened the outlook, according to a currency trader at a private sector bank.

Rising oil prices, now above $90 per barrel, have widened the risks of a further rupee depreciation. The currency market faces negative Asian cues, with oil-sensitive currencies falling. Risk appetite waned amid the surge in US yields, which are climbing despite expectations that the Federal Reserve will refrain from an interest rate hike next month.