Indian rupee seen edging higher as oil slips and Fed hike bets fade

The Indian rupee is expected to open slightly firmer on Monday, with traders pointing to softer oil prices and a further paring of bets on a Federal Reserve rate increase this month as the main sources of relief. The currency is seen opening in the 96.22-96.26 range, according to traders, after settling at 96.3150 to the dollar on Thursday. Indian financial markets were closed on Friday for a holiday.

The rupee has been under sustained pressure, slipping convincingly past the 96-per-dollar level to a fresh two-month low. A surge in US Treasury yields, which has lifted the dollar, and persistent pressure from high oil prices have been the main headwinds, according to the account. The Reserve Bank of India has remained a steady presence in the market, which traders say has helped slow the currency's decline. With the 96-per-dollar level, closely watched by the market, now decisively breached, traders see greater scope for the rupee to weaken further.

One currency trader at a private sector bank said the modest opening was likely more a reflection of expectations that the Reserve Bank of India will step in than of any change in the underlying picture, adding that the odds of further rupee weakness had risen now that 96 has been breached.

The probability of a Federal Reserve rate increase at this month's meeting has fallen to around 20% after the US economy added fewer jobs than expected. Investors initially responded by buying Treasuries, but that move later reversed, underscoring the inflation forces weighing on US bond markets. Morgan Stanley said in a note that investors appeared reluctant to extrapolate a single soft employment print while inflation risks remained high. Traders said that suggests any relief for the rupee from the sharp repricing of Fed expectations could prove fleeting.

Oil prices slipped on Monday as rising crude exports from the Middle East and oil stock releases by Group of Seven nations eased supply concerns.