Indian rupee to navigate US-Iran truce possibility, surging global bond yields

MUMBAI: The Indian rupee is expected to remain on the defensive on Friday as markets weigh the possibility of a truce between the US and ​Iran and gauge the impact of soaring global bond yields that ‌have intensified headwinds facing risk assets.

The Indian rupee is expected around the 96 per dollar mark, traders said, marginally weaker from its close at 95.9550 in the previous session and vulnerable ​to deeper losses in the absence of central bank intervention.

US and Iranian ​negotiators in New York are exploring a phased path out of war ⁠that would involve Tehran reopening the Strait of Hormuz and Washington lifting ​its economic blockade of Iran, Reuters reported on Thursday.

Brent oil prices were down 0.5% ​on Friday at $106 per barrel.

Meanwhile, global yields continued to march higher, with the 30-year US Treasury yield rising to its highest level since 2004 after more Federal Reserve officials said additional ​interest rate hikes may be needed to curb high inflation.

Markets are currently pricing ​in a near 70% chance of an October rate hike by the Fed, per CME’s ‌FedWatch ⁠tool. The hike wagers have also been a tailwind for the dollar index by lifting it nearly 2% over the month so far.

Expectations of global rate hikes, volatile oil prices and weakness in portfolio inflows have all weighed on the rupee ​this month while ​persistent interventions by ⁠the Reserve Bank of India have helped keep a lid on volatility.

Traders expect the pattern to persist in the near ​term with the 96-per-dollar mark seen as a key psychological ​support level ⁠for the South Asian currency.

“It would be prudent not to defend the exchange rate too aggressively at any level at the expense of reserves. Instead, we expect the ⁠RBI ​to allow orderly depreciation in line with global ​financial and commodity-market conditions,” ANZ said in a note, forecasting the INR at 96.50 by December and ​98.30 by the end of next year.