Indian rupee may slip on oil, risk-off mood; RBI once again expected to ride to rescue

Mumbai, India (Reuters) - The Indian rupee is expected to open weaker on Wednesday, as a deteriorating risk environment and high oil prices weigh on the currency's prospects, traders said. The rupee is forecast to trade within a range of 95.75 to 95.80, compared to 95.68 on the previous day, according to market sources.

Brent crude oil prices have been edging closer to $92 a barrel, while elevated U.S. Treasury yields are dampening risk sentiment. Oil prices have remained elevated for four consecutive days, fueled by uncertainty surrounding the Strait of Hormuz. U.S. President Donald Trump affirmed on Tuesday that no negotiations were underway with Iran and stated that the strait remained open, contradicting Iran's claims that the key waterway remains closed to shipping.

The surge in crude oil prices is sparking inflation concerns and propelling U.S. Treasury yields higher. The 30-year Treasury yield has reached its highest level since 2007. This pressure from oil and U.S. yields is compounded by the impending deadline for the Reserve Bank of India (RBI) to implement its discounted foreign-currency swap facility for deposits, which was moved forward by a month. The earlier deadline had already cast a shadow on the rupee's near-term outlook.

Traders and industry observers acknowledge that the RBI is bearing the brunt of the currency's stress, but the central bank continues to support the rupee. The RBI's daily intervention in the foreign exchange market has helped cushion the rupee's decline and limit volatility, enabling the currency to navigate the rising pressure from higher oil prices more smoothly. However, the underlying demand for dollars remains robust, and traders are closely monitoring the RBI's next move near the 95.80 to 96.00 exchange rate range.