Indian rupee faces more pressure with likely Fed rate hike compounding oil pain

Mumbai: The Indian rupee is expected to face more pressure on Wednesday, as a potential Federal Reserve rate hike compounds the impact of high oil prices. Traders anticipate the rupee to open weaker, hovering around the 96 mark after closing at 95.9550 against the dollar on Tuesday. The local currency has endured a seven-day losing streak, eroding approximately 1.5% since the central bank's frequent interventions to shore it up.

The depreciation accelerated when the rupee dipped near the 96-a-dollar threshold, a critical RBI-backed support level, two weeks ago. The rupee breached 95.80 on Tuesday, a key floor that traders had considered, signaling potential further declines. A sustained breach of the 96 mark could accelerate the downtrend, according to a currency trader.

Interest rate futures now suggest a greater than 90% probability of a Fed rate hike later in the day, up from around 60% just a week prior, as per the CME FedWatch Tool. The surge in Brent crude prices nearing $110 a barrel has heightened inflation concerns, driving U.S. yields to multi-year peaks. Investors, having largely priced in the hike, will focus on the Fed's forthcoming statement, scrutinizing Chair Kevin Warsh's remarks on oil and inflation.

Goldman Sachs predicts the Fed might cautiously caution against overestimating the likelihood of an October hike, rather than explicitly stating it in the statement. Instead, Warsh may indicate the Fed intends to "carefully evaluate" incoming data or await further inflation reports before making additional policy decisions.