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.