Indian rupee snaps rising streak on hawkish Fed, oil rise

Mumbai witnessed the Indian rupee weakening this week due to a combination of factors. Rising oil prices and expectations of a more hawkish Federal Reserve acted as significant headwinds, negating support from increasing foreign portfolio inflows. The currency remained stagnant, closing at 94.24, a 0.2% decline from the previous close and a 0.3% fall week-on-week.

Earlier in the week, a surge in foreign portfolio flows managed to lift the rupee to a six-month high. Investors from overseas had net bought over $8 billion of Indian stocks and another $800 million poured into local debt. However, market participants remain vigilant for any indications of the Reserve Bank of India's (RBI) dollar-buying interventions to bolster its foreign exchange reserves.

ING's analysts suggest that the RBI might employ periods of rupee strength to replenish its reserves. While the downside risks to the rupee have diminished, the potential for a significant appreciation remains limited, resulting in the currency stabilizing rather than gaining substantial strength.

The US Treasury yields rose, alongside expectations of increased interest rates, with the 2-year yield hitting a one-month high. This development impacted Indian stocks and bonds, with the benchmark Nifty 50 down by an unspecified percentage, and the 10-year bond yield increasing by more than 6 basis points to 7.31%.

The rupee's recovery was hampered by adverse global cues on Friday, coupled with data revealing that India's October merchandise trade deficit had reached a one-year high. The FX reserves data for India for the week ending November 6 is set to be released after the market closes.