Indian rupee to rise on dollar slump after Treasury boosts bond buyback; oil risk persists

Mumbai: The Indian rupee is poised to open higher on Thursday, following a slide in the dollar to a three-month low. This comes after the US Treasury announced plans to increase its purchases of longer-dated bonds in an effort to stabilize the bond market. While the recovery in the rupee is expected to be modest beyond the initial rise, traders caution that high oil prices and a weak outlook for the Asian currency will continue to exert downward pressure.

The rupee is anticipated to open in the 95.62-95.66 range, having closed at 95.7525 against the dollar on Wednesday. The dollar index experienced its steepest decline in nearly three months, dropping 0.88% after the Treasury's announcement. This move comes after a sell-off in long-dated US Treasuries, pushing the 30-year yield to its highest level since 2007 due to concerns about inflation and the demand for a higher term premium.

Although the Treasury's actions do not equate to quantitative easing, analysts note that any significant increase beyond 5% in the 10-year yield would likely face strong resistance from the US government. However, the impact of the dollar's decline on the rupee may be limited due to the persistent risk posed by oil prices, with Brent crude trading close to $92 a barrel.

Traders recognize that market sentiment for the rupee remains bearish despite the positive initial move.