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

The Indian rupee faces pressure this Thursday from rising oil prices and a stronger dollar due to expectations of higher US interest rates. Traders anticipate the rupee will open at 95.85-95.87 per dollar, down from its previous close of 95.74. A more positive-than-expected report on US purchasing managers and poor performance at a Treasury bond auction contributed to this sentiment.

The 10-year US Treasury yield has increased by over 15 basis points since Tuesday, while five-year yields hit 5% for the first time since 2007. Meanwhile, Brent oil prices have reached the $100 per barrel mark, despite Iran's willingness to negotiate for an end to tensions with the US. Analysts at MUFG noted that the Asian foreign exchange (FX) market faces challenges, particularly for currencies with limited exposure to the technology sector and greater sensitivity to higher energy prices.

Foreign investors have sold $3.5 billion worth of Indian equities and bonds this month. According to RBI Deputy Governor Poonam Gupta, the Indian economy has performed exceptionally well, but there is a disconnect between economic performance and the financial markets, largely due to investors seeking short-term returns elsewhere.

Gupta suggested that the prevailing market dynamics might not be justified and that the rupee could stabilize or even appreciate from its current levels, as the weakness observed since March 2025 is temporary. Frequent interventions by the Reserve Bank of India have limited the rupee's decline near the 96 mark in recent sessions.