Summary India’s rupee is expected to extend gains as falling oil prices ease pressure, while rising US Treasury yields following higher-than-expected inflation could limit its recovery.
MUMBAI (Reuters) - The Indian rupee is set to resume its recent rally on Wednesday, drawing support from softer oil prices, while a jump in US Treasury yields after inflation rose faster than expected could be a dampener.
The rupee is expected to open in the 93.70 to 93.74 range, per traders, having settled at 93.93275 to the dollar on Monday. Indian financial markets were shut on Tuesday or a local holiday.
Brent crude slid below $90 a barrel for the first time since August on Tuesday after US officials played down the need for further military action against Iran, tempering fears of additional disruptions to Middle Eastern oil supplies.
While prices have recovered from their lows of $92.20, they remain more than 6% down this week, following a decline of over 16% last week.
Lower oil prices offer the rupee relief from one of its biggest pressure points in recent months. High crude prices had kept the currency under sustained pressure, driving up dollar demand from oil importers and prompting the Reserve Bank of India to open a special window for oil refiners to meet their dollar requirements outside the market.
The RBI's efforts to address dollar demand, alongside a revival in foreign equity inflows, have helped the rupee recover more than 3% from its recent lows. India has benefited from investors reassessing their concentrated bets on AI-linked shares and looking to diversify into other markets.
"For the rupee, all the right boxes are being ticked right now," a currency trader at a bank said.
However, after the rupee's recent rally, the level is looking very attractive for importers, particularly with the risk from US Treasury yields coming into play, he said.
US Treasury yields jumped on Tuesday after data showed that US consumer prices rose more than economists expected in October, leading traders to bolster bets on a larger interest rate hike at the Federal Reserve's December meeting.
