Indian rupee set for mild relief from dip in oil, fading Fed October hike bets

Mumbai: The Indian rupee is poised to experience a brief respite on Monday, as reduced oil prices and diminished expectations of an October Federal Reserve rate hike ease pressure on the currency. Traders anticipate the rupee will open at 96.22-96.26 per dollar, following its settlement at 96.3150 to the dollar on Thursday. The Indian financial markets were closed on Friday for a public holiday.

The rupee has faced persistent pressure, plummeting below the 96-dollar mark to a two-month low. Key factors contributing to the currency's decline include a surge in US Treasury yields, which have bolstered the dollar, and ongoing high oil prices. The Reserve Bank of India has maintained a consistent presence, mitigating the rupee's decline.

However, with the 96-dollar level, a key market benchmark, firmly crossed, traders foresee a greater likelihood of further rupee depreciation. A currency trader at a private sector bank noted that the slight opening could simply indicate market expectations of the RBI intervening. Nonetheless, the fact that the 96-dollar threshold has been decisively surpassed heightens the probability of continued rupee weakness.

The likelihood of a Federal Reserve rate hike during this month's meeting has dropped to approximately 20%, following the US economy's release of weaker-than-expected job data. While initial reactions saw investors buying Treasuries, that shift reversed, highlighting the persistent inflationary pressures affecting US bond markets.

Morgan Stanley explained that investors were hesitant to assume a single soft employment print while inflation concerns remained elevated. Hence, any alleviation for the rupee stemming from revised Fed expectations may prove short-lived, according to traders. In the meantime, oil prices dipped on Monday due to increased crude exports from the Middle East and oil stockpiles released by Group of Seven nations, reducing supply worries.