Indian rupee snaps rising streak on hawkish Fed, oil rise

MUMBAI: The Indian rupee weakened this week as rising oil prices and growing expectations of a more hawkish Federal Reserve offset support from improving foreign portfolio inflows, stalling the currency’s recovery.

The Indian rupee closed at 94.24, down 0.2% from its previous close and 0.3% week-on-week.

A pickup in foreign portfolio flows helped lift the currency to an over six-month high earlier in the week. Overseas investors have net bought over $8 billion of Indian stocks over November so far, with another $800 million pouring into local debt.

The market is keeping a keen eye on signs of the Reserve Bank of India’s dollar-buying interventions to replenish its foreign exchange reserves.

“The RBI is likely to use periods of INR strength to rebuild reserves,” ING said in a note. “While downside risks to INR have diminished, the scope for sustained appreciation remains limited, leaving the currency broadly stable rather than materially stronger.”

US Treasury yields rose with the interest rate expectations sensitive 2-year yield hitting a one-month peak as investors weighed the prospect of an outsized 50-basis-point rate hike by the Fed next month.

Higher US bond yields, combined with worries over a renewed rise in oil prices, hit Indian stocks and bonds, with the benchmark Nifty 50 down xx% while the yield on the 10-year bond rose more than 6 basis points to 7.31%.

The flows bolstered the rupee’s recovery from after it neared record low levels last month, when the central bank had stepped up policy support by curbing dollar demand.

Adverse global cues hit the rupee on Friday while data showing India’s October merchandise trade deficit rose to one-year high added to the strain.

India’s FX reserves data for the week ended November 6 is due after market close.