Indian rupee to ride oil fall tailwind; Fed rate worries may cap gains

MUMBAI: The Indian rupee is poised to open higher on Tuesday, underpinned by softer crude prices on progress in US-Iran negotiations, although ​expectations of Federal Reserve rate hikes are likely to temper ‌the rise.

The Indian rupee is expected to open in the 94.55 to 94.60 range, according to traders, after declining 0.4% on Monday to settle at 94.6775 per dollar. The ​currency ended at its lowest level of the session, snapping a ​six-day winning streak.

Bankers said Monday’s decline was not driven by any ⁠specific flow and appeared largely to be against the prevailing trend, ​catching most market participants off guard.

Mounting expectations of a Fed hike in September ​are beginning to weigh on Asian currencies, including the rupee, they added.

It appears the risk for the rupee is now shifting from oil to the Fed, a currency trader ​at a private sector bank said.

With Brent broadly holding below $80, U.S. yields ​are the bigger concern for the rupee, he added.

The trader said that while exporter ‌hedging ⁠activity has picked up in recent sessions, the underlying dollar demand remains persistent.

U.S. Treasury yields climbed on Monday, with the interest rate-sensitive two-year yield hitting a 16-month high on expectations of rate hikes later this year.

Fed funds futures ​are pricing in ​around a 75% ⁠probability of a rate hike by September.

Deutsche Bank now expects the Fed to raise rates this year.

“After a hawkish ​Fed last week with a shift in style from ​new Fed ⁠Chair Kevin Warsh, our economists now have two 25bps hikes in their Fed forecast,” it said in a note.

Meanwhile, Brent crude fell more than 3% on ⁠Monday ​to near $78 a barrel on optimism over ​progress in U.S.-Iran talks.

U.S. Vice President JD Vance said in Switzerland that Iran has agreed to ​allow nuclear inspectors into the country.