India rupee to benefit from dollar retreat, plunging US yields; oil surge tempers impact

MUMBAI: The Indian rupee may find support from a retreat in the dollar and a decline in US Treasury yields at the start of trading on Friday, although a further rise in oil prices could still have a negative impact on the currency. The Indian rupee is projected to open at a flat level or marginally higher against the dollar, after closing at 95.26 per dollar on Thursday.

The recent concerns surrounding artificial intelligence prompted a flight to safety, causing investors to move into US Treasuries, resulting in a decrease of 8 basis points in the two-year yield, the lowest level in seven weeks. The 10-year Treasury yield followed suit, falling to 4.90%, down 46 basis points from its previous high.

Despite the safe-haven demand, the dollar did not gain as much, with the dollar index dropping to 101.70 due to the falling US yields, which in turn weakened the currency. Asian currencies remained relatively stable, with modest increases. The market's cautious attitude, driven by AI-related worries, saw US equity indexes decline on Thursday, with futures forecasting further losses due to disappointing earnings from leading technology firms, prompting questions about the long-term benefits of significant investments in artificial intelligence.

The growing uncertainty was further exacerbated by a spike in oil prices, caused by worries about potential supply disruptions after Yemen's Iran-aligned Houthis intensified their attacks on Saudi Arabia. Brent crude futures reached a peak of $117.84 per barrel. For the rupee, the relief from the falling US yields is likely to be minimal, as it primarily stems from a safety-seeking behavior, according to a currency trader at a private-sector bank.

However, the surge in oil prices could more than compensate for this benefit, he added, stressing that the rupee's ability to gain support once again hinges on the Reserve Bank of India's intervention in the market.