Indian rupee faces pressure from oil, US yields; RBI deputy flags case for gains

Mumbai: The Indian rupee faces potential challenges on Thursday due to a surge in oil prices and a sturdier dollar driven by heightened expectations of US interest rate hikes. Central bank intervention is anticipated to mitigate these losses. The rupee is anticipated to open near 95.85-95.87 per dollar, down from its previous day's closing rate of 95.74.

The stronger-than-anticipated US Purchasing Managers' Index report overnight heightened concerns about prices, and a subpar performance in a five-year Treasury note auction further increased yields. The 10-year US Treasury yield surged over 15 basis points from its closing level on Tuesday, while five-year yields crossed the 5% threshold for the first time since 2007.

Meanwhile, Brent oil prices have returned to the $100 per barrel mark despite Iran expressing openness to diplomacy to end the US-Iran conflict, but the two nations remain far apart on potential solutions. MUFG analysts noted that the broader Asia FX environment remains challenging, stating that currencies with limited exposure to the technology cycle and greater susceptibility to higher energy prices could face renewed pressure.

Foreign investors have sold an estimated $3.5 billion worth of Indian stocks and bonds so far this month. According to a deputy governor at the Reserve Bank of India, there is a strong case for the rupee to appreciate from its current levels, as there appears to be a disconnect between the real economy and financial markets, driven largely by the pull of short-term returns in competing markets.

Frequent interventions by the RBI have thus far helped curb the local currency's decline near the 96 mark.