Indian rupee's RBI-spurred rally faces twin headwinds of oil volatility, Fed uncertainty
- The Indian rupee is expected to open marginally higher, before coming under pressure later in the session. The currency settled at 95.8525 per US dollar on Tuesday
MUMBAI: The Indian rupee’s recent recovery may falter on Wednesday with volatile crude prices and lingering Federal Reserve rate concerns tempering the positive momentum.
The currency has drawn support over the last three sessions from likely intervention by the Reserve Bank of India, which traders expect will continue to underpin the currency.
However, volatile oil prices and the possibility of a hawkish signal from the Fed could challenge the recovery, traders said.
The Indian rupee is expected to open marginally higher, before coming under pressure later in the session. The currency settled at 95.8525 per US dollar on Tuesday.
The RBI right now is a major anchor for the rupee, a currency trader at a bank said. He expects the RBI’s presence to remain a key tailwind, particularly after its recent practice of stepping in ahead of, or around, the market open.
Oil swings
The rupee will have to contend with the continued choppy prices action in oil. Brent crude, having dropped 4.8% to near $82.50 per barrel, is back on the way up, trading near $87.50.
Oil prices have whipsawed on the U.S.-Israeli war on Iran with investors watching developments in the Middle East.
Iran’s Revolutionary Guards say three oil tankers were “struck and stopped” a few hours back after ignoring warnings in the Strait of Hormuz.
FED looms
The dollar index held near a one-month high on Wednesday amid renewed hostilities in the Middle East, while traders awaited a key Federal Reserve interest rate decision later in the day.
Markets largely expect the Fed to hold rates unchanged, though a 30% chance of a 25-basis-point hike remains priced in.
“We think that the Fed will have no choice but to strike a hawkish note,” amid the ongoing U.S.-Iran conflict, Matthew Ryan, head of market strategy at financial services firm Ebury, said.
Fed Chair Kevin Warsh’s characterisation of the oil spike will be important for markets, he said.
Comments