Oil-driven dollar demand to pressure rupee; RBI blunts losses
The Indian rupee is expected to remain under pressure through Wednesday's session, with Brent crude nearing $90 a barrel and weaker Asian currencies weighing on sentiment, while the central bank is likely to limit the decline.
The rupee is expected to open in the 95.46-95.48 range, traders said, after settling at 95.4350 per dollar on Tuesday.
The local currency has remained under pressure since breaking past the 95 level last Wednesday, with oil prices continuing to rise amid uncertainty surrounding an end to the U.S.-Iran conflict.
With Brent already up 7% this week and approaching $90 a barrel, importers are stepping up hedging, bankers said.
The resulting dollar demand is adding pressure on the rupee and offsetting the positive sentiment from Reserve Bank of India interventions.
In the two trading sessions this week, the RBI has been selling dollars through state-run banks to limit the rupee's losses, and traders say the currency would likely have weakened more without the support.
The central bank sold dollars near the 95.40 level on Tuesday and around 95.25-95.30 on Monday.
"The RBI is on the offer (on dollar/rupee) throughout the day. The problem is that with oil risk back, underlying demand is now pushing through," a currency trader at a bank said.
The trader expects the RBI to resist a move above 95.50.
KEY U.S. DATA LOOMS
U.S. inflation data due later in the day could provide clues on whether the Federal Reserve will raise rates next month. Markets are currently split on the prospect of a hike.
More so than the labour market, the Fed's focus has shifted more towards the inflation side of the mandate, and the CPI number will be important, MUFG Bank said in a note.
