Rupee to edge higher as oil slips; inflow haul caps bearish bets

India's rupee is poised to open slightly stronger on Tuesday, buoyed by falling oil prices and rising US Treasury yields, according to market projections. Importer hedging activities are anticipated to limit currency gains. India's balance of payments strengthening efforts have resulted in an inflow of $143.6 billion, reported on Monday, aiding the central bank in maintaining a tight control over the rupee's depreciation expectations.

The currency is likely to open near 95.75 to 95.80 against the dollar, marginally higher than its previous session's closing rate of 95.8150. Brent crude is trading near $100 per barrel, ahead of potential US-Iran talks at the United Nations General Assembly. Oil prices remain a crucial factor for the rupee as traders assess its impact on India's import expenses and Central Bank policy rate decisions.

The Federal Reserve and Bank of Japan both raised rates last week, prompting traders to speculate on a tightening policy by the Reserve Bank of India as well. The rupee "is likely to remain in the 95-96 band heading into the policy decision," commented a trader from a state-run bank, adding that forward premiums may exhibit a more pronounced reaction than the spot rupee on rate announcements.

The Indian central bank has been actively intervening in the foreign exchange market to support the rupee and traders anticipate this trend to continue. Analysts at Natixis stated that the Reserve Bank of India will likely raise rates to bolster the rupee and have projected 50 basis points of hikes by the end of 2026. Market sentiment leans towards a 56% probability of a US rate hike in October, up from 43.5% a week ago, as shown by the CME FedWatch tool.