Oil relief to revive rupee rally, US yields surge could act as brake

MUMBAI: The Indian rupee is set to resume its recent rally on Wednesday, drawing support from softer oil prices, while a jump in ​US Treasury yields after inflation rose faster than expected could be ‌a dampener.

The rupee is expected to open in the 93.70 to 93.74 range, per traders, having settled at 93.93275 to the dollar on Monday.

Indian financial markets were shut ​on Tuesday or a local holiday.

Brent crude slid below $90 a barrel for ​the first time since August on Tuesday after US officials played down ⁠the need for further military action against Iran, tempering fears of additional ​disruptions to Middle Eastern oil supplies.

While prices have recovered from their lows of $92.20, ​they remain more than 6% down this week, following a decline of over 16% last week.

Lower oil prices offer the rupee relief from one of its biggest pressure points in ​recent months. High crude prices had kept the currency under sustained pressure, driving ​up dollar demand from oil importers and prompting the Reserve Bank of India to open ‌a ⁠special window for oil refiners to meet their dollar requirements outside the market.

The RBI’s efforts to address dollar demand, alongside a revival in foreign equity inflows, have helped the rupee recover more than 3% from its recent lows. India ​has benefited from investors ​reassessing their concentrated ⁠bets on AI-linked shares and looking to diversify into other markets.

“For the rupee, all the right boxes are being ​ticked right now,” a currency trader at a bank said.

However, ​after the ⁠rupee’s recent rally, the level is looking very attractive for importers, particularly with the risk from US Treasury yields coming into play, he said.

US Treasury yields jumped on ⁠Tuesday ​after data showed that US consumer prices rose ​more than economists expected in October, leading traders to bolster bets on a larger interest rate hike ​at the Federal Reserve’s December meeting.