Rupee's Rally Faces Fresh Test as Oil Surge, US Yields Weigh

The Indian rupee is expected to open weaker on Wednesday, as a sharp rise in global crude prices and elevated US Treasury yields threaten to reverse the currency's recent gains. Traders anticipate the rupee will open in the 95.02-95.06 range against the dollar, following a close at 94.95 on Tuesday.

The currency had been on a three-day winning streak, touching a two-month high of 94.80, largely driven by aggressive intervention from the Reserve Bank of India (RBI). This central bank support, along with dollar selling from foreign banks, has made the rupee one of the better-performing Asian currencies in recent sessions.

The immediate challenge for the RBI is whether it will step in again to absorb the pressure from higher oil prices. Market participants note that the central bank is currently the only significant dollar seller, and without its presence, the rupee may struggle to maintain its current levels.

The RBI's intervention capacity has been bolstered by a surge in deposits from non-resident Indians. Inflows under the FCNR(B) scheme reportedly crossed $100 billion by the August 31 deadline for banks to raise deposits eligible for concessional swaps with the central bank.

Oil prices extended their rally in Asian trading, with Brent futures climbing to $95.50 a barrel. The increase follows fresh exchanges of strikes between the US and Iran, which have heightened fears of supply disruptions and dampened hopes for a quick easing of Middle East tensions. This spike in crude has also pushed US Treasury yields to their highest levels since late 2023, adding further pressure on emerging market currencies like the rupee.