Indian rupee pressured by US yields, euro-led dollar strength; RBI acts as buffer

MUMBAI: The Indian rupee is expected to open mildly weaker on Tuesday, weighed by a rise in long-dated US Treasury yields ​and euro-led dollar strength, while traders expect the central bank ‌to continue smoothing the currency’s decline.

The Indian rupee is expected to open in the 96.32-96.34 range, per traders, having settled at 96.2925 to the dollar on Monday. It is ​now about 0.6% from its all-time low of near 96.96 ​hit in May.

The currency has remained under pressure over the ⁠past month as the external backdrop has grown increasingly challenging, with elevated ​oil prices, rising US Treasury yields and foreign equity outflows adding to ​dollar demand.

“The way things are, it’s only a matter of time before we see 97,” a currency trader at a bank said.

“While the RBI may have something to ​say about that, recent intervention suggests it will not necessarily draw ​a line at a particular level if underlying pressures persist.”

The Reserve Bank of India ‌has been ⁠increasingly active in the market, selling dollars when the rupee comes under strain and helping temper the pace of its decline.

Dollar charges higher

The dollar index has climbed past 102, supported by weakness in the euro and ​rising longer-dated US ​Treasury yields, and ⁠is hovering near its highest level since April last year.

The euro has been weighed down by political uncertainty ​and fiscal concerns across the euro zone. Meanwhile, the ​10- and ⁠30-year Treasury yields have hit fresh 24-year highs with the recent selloff in bonds persisting.

Data released on Monday showed US services-sector activity remained broadly resilient ⁠in ​August, adding to upward pressure on yields.

The ​survey’s measure of prices paid by businesses for inputs also jumped during the month, suggesting inflationary ​pressures may prove more persistent.