Indian rupee hit by oil worries; outlook bearish despite RBI-spurred inflows

MUMBAI: The Indian rupee is expected to come under pressure at Tuesday’s open, with high crude prices and a bearish turn in ​derivative market positioning supporting demand for the dollar.

The Indian rupee is ‌expected to open in the 96.50 to 96.55 range, traders said, after settling at 96.4450 on Monday.

The Indian currency slipped past 96.50 in the previous session for the ​first time in two months and would likely have weakened further ​had it not been for intervention by the Reserve Bank ⁠of India, traders said.

The rupee’s outlook has deteriorated in recent weeks, ​coinciding with a rally in oil prices amid renewed tensions between the U.S. ​and Iran. Brent crude rose above $91 a barrel on Monday before pulling back to around $88.50.

Despite the slight pullback in oil prices, the news flow remains a source of concern. ​Yemen’s Iran-aligned Houthis said they would impose a naval blockade on ​Saudi Arabia, potentially opening a new front in the conflict with the U.S. and increasing ‌risks ⁠to energy supplies.

Sentiment sours

Market indicators point to the shift in sentiment toward the rupee.

The spread between onshore and offshore rupee forward prices has widened, while options traders are paying more to hedge against further losses in the ​currency than to ​position for a ⁠rebound, suggesting investors are becoming increasingly bearish on the rupee.

Inflow boost

India’s central bank said on Monday that measures ​announced last month to strengthen the country’s balance of payments ​and ⁠boost capital inflows had attracted more than $20 billion.

Most traders and analysts said the inflows exceeded their expectations.

However, that is unlikely to ease near-term pressure on the ⁠rupee, ​a currency trader at a private bank said.

The ​market has turned increasingly pessimistic on the rupee, and it would take a major trigger ​to alter that view, he said.