Rising US yields, oil headwinds put RBI's Indian rupee 96 buffer to the test

MUMBAI: The Indian rupee is expected to come under pressure at Tuesday’s open, weighed down by higher ​US yields and oil prices, putting it at risk of ‌slipping past the 96-a-dollar mark, seen as a key near-term support level.

The Indian rupee is expected to open in the 95.99-96.02 range, per traders, after settling at 95.9825 per dollar ​on Monday.

India’s central bank may be reluctant to see the rupee ​break past the psychologically important 96-per-dollar mark and could intensify ⁠its intervention, having been a near-daily presence in the market in recent ​weeks, market participants said.

Analysts have noted that the Reserve Bank of India ​has higher firepower to do so following the recent build-up in foreign exchange reserves from inflows linked to special measures it has introduced.

“The RBI intervention is a given at ​this point. The real question is whether it is going to keep ​defending levels, or simply smooth the move and let the rupee adjust more,” a currency ‌trader ⁠at a bank said.

The rupee has been under persistent pressure from the stubbornly high oil prices, while a jump in US yields and a hawkish repricing of Federal Reserve policy expectations have compounded the strain. The dollar index ​is trading near a ​two-month high.

Markets now ⁠see a near 70% probability that the Fed will follow this month’s rate hike with another increase in ​October, up from less than 20% a month back.

US yields ​ratchet higher

US ⁠Treasury yields rose on Monday with the surge in oil prices stoking concerns that inflation could prove stickier, raising the prospect of further Fed rate ⁠increases. The ​10-year US yield climbed 6 basis points ​to 5.24%, hovering near a nearly two-decade high.

Oil prices rose on Tuesday on concerns over prolonged ​supply disruptions in the Middle East.