Rupee's inflow-linked, RBI-backed optimism faces oil test
The Indian rupee's rally, propelled by the central bank's dollar sales and bolstered by hefty inflows from one-off measures, will face a familiar foe on Friday in rising oil prices.
The rupee is expected to open in the 94.55 to 94.60 range, per traders, having settled at 94.4850 to the dollar on Thursday, when the currency rallied 0.5%, taking its rally for the week to a percentage point.
Asia's second-best performing currency after the Korean won this week, the rupee has managed to climb to its highest level in two months despite a surge in oil prices that has pushed up U.S. Treasury yields and increased expectations that the Federal Reserve will raise rates this month.
The currency has found support from more forceful Reserve Bank of India intervention, complemented on Thursday by the RBI's update on the inflows mobilised through its special schemes.
Inflows linked to the schemes topped $136 billion, blowing past market expectations and providing a powerful tailwind for the rupee.
The combined force of outsized inflows and the RBI now showing willingness to use its expanded firepower more aggressively has the potential to change near-term perceptions of the rupee’s outlook, a currency trader at a bank said.
"However, oil can be a spoilsport," he said, noting that without a meaningful cooling-off in crude prices, it will be difficult for the currency to sustain its recent rally.
OIL RALLY EXTENDS, DOLLAR WEAKENS
Oil prices rose and are on track for the steepest weekly advance since mid-July on rising tensions and renewed U.S.-Iran hostilities. Brent crude inched past $96 a barrel in Asia trading.
Meanwhile, the rupee will draw support from broad-based dollar weakness, led by the surge in the Japanese yen.
Traders ramped up bets on a Bank of Japan rate hike, boosting the yen, while currency markets awaited U.S. payrolls data for clues on the Federal Reserve’s policy path.
