Flight to safety, rising oil put Indian rupee’s recovery to the test

MUMBAI: The Indian rupee’s recent recovery is likely to face headwinds on Friday from a flight to safety that’s weighing ​on risk-sensitive currencies and rising oil prices which threaten to ‌spur increased hedging by importers.

The Indian rupee is expected to open at 94.84-94.88 per dollar, according to traders, after settling at 94.8175 on Thursday. It ​had climbed to a more than six-week high near ​94.30 in the previous session before reversing course.

Bankers were surprised by ⁠both the speed of the reversal and its divergence from ​the broader trend. The move adds another layer of uncertainty for ​the rupee, which faces mounting pressure from a flight to safety and relentlessly rising oil prices, they said.

Safe-haven asset US Treasuries and the Japanese ​yen rallied while US equities suffered a selloff on doubts over the ​AI outlook. The 10-year US Treasury yield fell back below 5% despite rising ‌crude ⁠prices.

The 10-year US yield is down 40 basis points from its recent peak, notable in the context of concerns about a slowdown in AI spending and its implications for economic growth overshadowing economic ​data that points to ​persistent inflationary pressures.

Oil ⁠prices climbed on concerns about further supply disruptions after Houthi attacks on top exporter Saudi Arabia. ​Brent crude rose to just shy of $115 a ​barrel.

“It ⁠looks like markets are going through a subtle regime shift. Higher energy prices no longer mean higher rates forever; instead, the long ⁠end ​is starting to express a little more ​fear about growth,” ING Bank said in a note.

“It looks like there is ​some defensive rotation underway.”