Rupee under pressure as stalled Iran talks push oil higher

The Indian rupee is expected to open slightly weaker on Monday, having settled at 95.8125 to the dollar on Friday, according to traders, as stalled US-Iran talks pushed oil prices higher and revived concerns about prolonged disruption to crude supplies.

The 96-per-dollar level has become increasingly important over the past two weeks, with the Reserve Bank of India repeatedly stepping in as the currency approaches it. That intervention, traders said, has so far prevented the rupee from sustaining a dip past 96, despite pressure from higher oil prices, rising US Treasury yields and a firmer dollar.

Oil rose on Monday after US President Donald Trump rejected an Iranian proposal to resolve the conflict and reopen the Strait of Hormuz. Brent crude climbed 2.5 per cent to around $107 a barrel in Asian trading, with the move spilling over into US bonds.

The 10-year Treasury yield rose to 5.2 per cent, lifting the dollar and adding to pressure on the rupee and other Asian currencies. Longer-dated US Treasury yields have jumped in recent sessions following robust economic data, with the 10-year and 30-year yields now at their highest levels in nearly two decades, compounding concerns over the inflationary impact of higher oil prices. Traders are pricing in a more than 64 per cent chance of another US rate move in October.

A currency trader at a bank said the RBI was providing a reliable buffer for now against all the negatives for the rupee, but questioned how long it could hold 96 if oil and US yields kept pushing higher. Importers, the trader added, were responding by increasing their hedging.