Lower Fed hike odds, oil dip lend RBI hand in supporting Indian rupee

The Indian rupee is facing a less challenging situation on Wednesday, following a decline in US rate-hike expectations and a slight dip in oil prices. This has relieved some of the pressure on the currency, which has required frequent support from the Reserve Bank of India (RBI). The rupee opened at 95.94-95.99 per dollar on Wednesday, after closing at 95.98 on Tuesday.

It had previously fallen to a two-month low of 96.1475 before recovering due to potential RBI intervention. Over the past few weeks, the rupee has consistently needed RBI intervention to curb its decline, as factors such as high oil prices, rising US Treasury yields, weak portfolio flows, and increased hedging demand have put downward pressure on it.

The RBI has been utilizing its enhanced foreign exchange reserves to prevent external pressures from affecting the currency excessively. RBI's commitment to keeping the rupee stable around the 96-per-dollar level is becoming more apparent, providing a floor for the currency as mounting pressure mounts. Amit Pabari, managing director at FX advisory firm CR Forex, stated that the odds of a Federal Reserve rate hike next month have decreased to 44% from nearly 70%.

This dovish outlook in expectations has alleviated some of the pressure on the RBI. US consumer confidence dipped to its lowest level in over 12 years in September, while New York Fed President John Williams expressed that there is "no need for urgency" after the September rate increase. Williams emphasized that the central bank has time to evaluate incoming data before deciding on its next move.

Oil prices also dropped by approximately 2.5% on Tuesday, following indications that Middle East exports were improving.