Rupee Seen Opening Higher as Crude Slips; Record Inflows Curb Depreciation Bets

The rupee is expected to open modestly stronger on Tuesday, supported by a decline in crude oil prices and softer long-dated US Treasury yields, though importer hedging demand is likely to limit the gains.

Traders expect the currency to open around 95.75 to 95.80 per dollar, marginally higher than its previous close of 95.8150.

Sentiment has also been helped by India's measures to strengthen its balance of payments, which have raised $143.6 billion, according to data released on Monday. The inflows have helped the central bank keep a firm lid on expectations of rupee depreciation.

Brent crude was hovering around $100 per barrel ahead of potential US-Iran talks at the United Nations General Assembly this week. Oil prices remain a key monitorable for the rupee as investors assess the impact on India's import bill, alongside the prospect of rate hikes by the central bank.

The Federal Reserve and the Bank of Japan raised rates last week, and traders have increased wagers on policy tightening by the Reserve Bank of India as well.

"The rupee is likely to cling to the 95-96 band heading into the policy decision," a trader at a state-run bank said, adding that forward premiums may react more sharply than the spot rupee to rate calls.

The RBI has been intervening frequently in the foreign exchange market to support the rupee, and traders expect this to continue. Analysts at Natixis said the central bank will need to hike rates to support the currency and have pencilled in 50 basis points of hikes by the end of 2026.

Traders are pricing in a 56% chance of a US rate hike in October, compared with 43.5% a week earlier, the CME FedWatch tool showed.