Oil relief to revive rupee rally, US yields surge could act as brake

Mumbai, India: The Indian rupee is poised to resume its recent upward trajectory on Wednesday, buoyed by a dip in oil prices, while a rise in US Treasury yields due to unexpectedly strong inflation could pose a setback. Traders anticipate the rupee to commence trading between 93.70 and 93.74 against the dollar, following its settlement at 93.93275 on Monday.

The Indian markets were closed on Tuesday for a national holiday. Brent crude prices plunged below $90 per barrel for the first time since August, as US officials downplayed the necessity for further military intervention in Iran, alleviating concerns over additional interruptions to oil supplies from the Middle East. Although the prices have since rebounded from their lows of $92.20, they still remain over 6% lower this week, following a decline of more than 16% last week.

Reduced oil prices alleviate one of the rupee's most significant stressors in recent months. High crude prices had kept the currency under constant pressure, increasing demand for dollars from oil-importing entities and prompting the Reserve Bank of India (RBI) to establish a special window for oil refiners to fulfill their dollar needs outside the market.

The RBI's initiatives to tackle dollar demand, coupled with an upsurge in foreign equity investments, have contributed to the rupee's recovery of more than 3% from its recent lows. The Indian economy has gained from investors recalibrating their focus on AI-related equities and seeking diversification into alternative markets. "For the rupee, everything is lining up perfectly right now," commented a currency trader at a bank.

Nevertheless, after the recent rally of the rupee, the level is proving highly appealing to importers, particularly considering the looming risk from US Treasury yields, according to the trader. US Treasury yields surged on Tuesday following reports that US consumer prices surged beyond economists' expectations in October, prompting traders to strengthen their expectations of a larger interest rate increase during the Federal Reserve's December meeting.