Rupee Expected to Open Stable as Central Bank Intervention Balances Rising Oil and US Yields

The Indian rupee is expected to open little changed on Tuesday, trading in the 95.14-95.18 range against the US dollar, according to market traders. This follows a session on Monday where the currency settled at 95.1625 to the dollar, rising 0.2% to reach a near four-week high in a move that surprised many market participants.

Flow- and position-related dollar selling pushed the rupee toward the higher side of its expected near-term range of 95.00 to 95.80. Currency traders noted that this movement occurred despite oil prices hovering around $90 a barrel. While the currency could attempt a further push higher at the open due to recent momentum, traders pointed out that such momentum-driven moves have historically struggled to sustain themselves, and importers are expected to increase hedging at current levels. India's strong GDP figures are viewed as helpful, though only at the margin.

Market participants are also evaluating the implications of the Reserve Bank of India's ballooning foreign exchange forward book, which reached an all-time high of $137 billion in July. This increase stemmed from the central bank swapping FCNR(B) deposits raised by banks. Economists have noted that the scale of this forward book limits room for sustained rupee appreciation, as the central bank will eventually need to purchase dollars to reduce its outstanding position.

Meanwhile, external macroeconomic pressures persist as US Treasury yields climbed to their highest levels since January 2025 on Tuesday. The yield on the 10-year Treasury note rose by 2 basis points to 4.778%, nearing a one-and-a-half-year high. This increase was driven by renewed conflicts between the United States and Iran, which simultaneously pushed oil prices higher and raised inflation concerns. Brent crude climbed to $91.14 a barrel following the resumption of fighting in the Middle East.

"The recent movement in the rupee highlights the complex interplay between domestic market interventions and global macroeconomic pressures. While central bank measures and favorable short-term flows are providing stability, businesses must remain cautious of external shocks like rising crude oil prices and fluctuating US Treasury yields. Forward-looking financial planning and robust hedging strategies are critical for enterprises navigating currency volatility in the current economic environment." — Dr. Shishir Gupta, Founder & CEO, StartupLanes