Indian rupee seen steady after holiday as Fed hike risk, hedging balance out RBI, oil relief

Mumbai: The Indian rupee is anticipated to remain stable on Thursday, buoyed by lower oil prices and the Reserve Bank of India's consistent intervention, which counterbalance the potential Federal Reserve rate hike next month and ongoing dollar demand for hedging purposes. Traders anticipate the rupee to open around the 95.40-95.44 range, having previously risen by 0.35% to 95.4125 against the dollar on Tuesday.

During Wednesday, India's foreign exchange and money markets were closed. Within the near term, the dollar/rupee pair has been fluctuating within a 95.00-95.80 range, with the Reserve Bank of India's intervention firmly restraining its movement towards the 96 mark. For the past fortnight, the RBI has intervened almost daily, especially when the USD/INR pair moved into the 95.60-95.80 range, to bolster the rupee, according to traders.

On Tuesday, the central bank's intervention was further bolstered by a decline in oil prices, resulting in the rupee's most significant single-day gain in nearly a month. Brent crude continued its descent in Asian trading on Thursday, possibly approaching a fourth consecutive day of losses. The nearest-month Brent futures contract was trading close to $87.30 a barrel, significantly lower than its recent peak of around $95.80.

With oil prices waning and the RBI firmly restraining the rupee's upside, it seems more range-bound action is on the horizon, according to a currency trader at a bank. The trader added that persistent dollar demand from importers observed in recent sessions is expected to persist, thus limiting the dollar/rupee downside. The dollar index maintained an eight-day high on Thursday following slightly improved U.S. inflation and other economic data, which heightened expectations that the Fed could raise interest rates next month.

This data reignited the rate-hike debate, focusing attention on Fed Chair Kevin Warsh's upcoming Jackson Hole speech, which is expected to provide a clearer insight into the Fed's future interest rate trajectory.