Rupee set to open lower as oil prices surge, US Treasury yields rise

The Indian rupee is set to open lower on Wednesday, facing pressure from rising oil prices and higher U.S. Treasury yields, according to traders. The currency is anticipated to open in the 95.02-95.06 range, as opposed to settling at 94.95 to the dollar on Tuesday. This trajectory signals a setback to the momentum the rupee has amassed after the Reserve Bank of India's (RBI) intervention.

The rupee has experienced a three-day winning streak, peaking at a two-month high of 94.80 to the dollar on Tuesday. The currency's resilience can be attributed to the RBI's aggressive intervention, complemented by dollar selling by foreign banks, traders noted. The rupee has been among the top-performing Asian currencies in recent sessions.

The lingering question is whether the RBI will once again step in to counteract the pressure from surging oil prices. Currently, the RBI stands as the only significant dollar seller in the market, and without its involvement, sustaining current levels of the rupee appears challenging. The RBI's intervention unfolds amid a surge in deposits from non-resident Indians, bolstering its capacity.

Deposits under the FCNR(B) scheme surpassed $100 billion by the August 31 deadline for banks to raise eligible deposits for concessional swaps with the RBI, reported The Financial Express. Oil prices have continued their rally, with Brent futures surging to $95.50 a barrel following renewed strikes between the U.S. and Iran, which heightened fears of supply disruptions and undermined hopes of a near-term easing of Middle East tensions.

The spike in crude prices has also impacted bond markets, leading U.S. Treasury yields to their highest levels since late 2023.