Indian rupee oil-linked losses meet key hurdle, RBI defence in focus

MUMBAI: Rising oil prices continue to weigh on the outlook for the Indian rupee, with traders watching for support near a ​key technical level and the response of the central bank.

The ‌Indian rupee is expected to open flat to marginally weaker on Tuesday, having dropped 0.3% in the previous session to 95.1850 to the dollar.

Brent crude is ​hovering near $115 a barrel, a six-month high, with little relief ​in sight. Analysts see limited scope for an immediate pullback, ⁠with renewed attacks by Houthis on Saudi Arabia, a key ​oil producer, raising concerns over supply disruptions.

The Indian currency’s recovery towards ​94.30 last week, driven largely by central bank intervention and one-off inflows, is being tested by a lack of macroeconomic support.

Portfolio flows remain weak, while fragile sentiment towards the rupee is ​encouraging companies to step up hedging, adding to the currency’s vulnerabilities.

The ​rupee came under sustained pressure on Monday despite signs of RBI dollar selling, underscoring ‌the ⁠challenge facing the central bank.

Traders see 95.30 as a key level to watch, given the RBI’s more aggressive intervention around that level. A sustained break could expose the rupee to a deeper decline towards 96 per ​dollar, they said.

“It ​increasingly looks ⁠like the RBI will allow the rupee to weaken at a measured pace, having supported the currency ​around the 95-per-dollar level for a while,” a currency ​trader at ⁠a private-sector bank said.

Asian cues

Asian currencies were mixed ahead of the Federal Reserve’s policy decision on Wednesday, offering little direction to the rupee.

While ⁠risk appetite ​was relatively firmer across the region, traders ​said that has done little to support the rupee, with domestic flows and oil ​prices remaining the dominant drivers.