Indian rupee fragile recovery faces test from oil rally, higher US yields

MUMBAI: The Indian rupee is poised to weaken at the open on Wednesday, pressured by a surge in oil prices and ​higher US Treasury yields after tensions in the Middle East resurfaced.

The ‌Indian rupee is expected to open in the 95.14-95.18 range, according to traders, after settling at 94.9675 on Tuesday. The Indian currency had managed a modest reprieve on ​Tuesday after sustained pressure in recent sessions.

The currency notched its best ​session in more than three weeks on Tuesday, aided by ⁠a burst of dollar selling in the non-deliverable forwards market.

Prior to ​Tuesday’s advance, the rupee had fallen 1% in a little over a week.

The ​recovery, which most traders said was fragile, may prove short-lived with the market’s focus shifting back to rising oil prices.

Brent crude climbed 2.6% to above $76 a barrel, extending ​Tuesday’s 3% rally.

Any “negative surprise” on U.S.-Iran that pushes crude higher could create ​a large impact on the rupee, CR Forex said.

A move towards the 95.80–96.00 zone cannot ‌be ⁠ruled out if oil-related risks emerge, it added.

The U.S. unleashed a new wave of strikes against Iran on Tuesday and revoked a license allowing the country to sell oil after three tankers were hit by projectiles in ​the Strait of ​Hormuz, adding pressure ⁠to an already shaky ceasefire.

“While the revocation doesn’t fundamentally change oil market dynamics, it’s important from a sentiment ​perspective. It heightens the risk of a breakdown in ​the temporary ⁠deal between the U.S. and Iran,” ING Bank said in a note.

The jump in oil prices added to the already existing inflation concerns, prompting investors ⁠to sell ​U.S. Treasuries. The 10-year Treasury yield rose ​to 4.5650%, its highest level in just under a month.

The dollar index inched past 101, ​while Asian currencies and equities weakened.