Rupee gets breathing room as Fed hike odds fall and oil slips

The Indian rupee faces a less difficult backdrop on Wednesday after a fall in US rate-hike expectations and slightly softer oil prices tempered pressure on a currency that has needed regular central bank support, traders said. The rupee is expected to open at 95.94-95.99 per dollar, according to traders, after closing at 95.98 on Tuesday. It fell to a two-month low of 96.1475 during Tuesday's session before recovering amid likely Reserve Bank of India intervention.

Over recent weeks the rupee has repeatedly required Reserve Bank of India intervention to moderate its decline, with high oil prices, rising US Treasury yields, weak portfolio flows and increased hedging demand weighing on it. The central bank has been managing the currency, using its increased foreign exchange reserves firepower to prevent external pressures from translating into excess pressure on the rupee.

Amit Pabari, managing director at FX advisory firm CR Forex, said the central bank's resolve to keep the rupee anchored around the 96-per-dollar mark was increasingly evident, "putting a floor under the currency while pressure mounts".

A dovish repricing in expectations for another Federal Reserve rate increase next month relieves pressure on the Reserve Bank of India to an extent. The odds have fallen to 44% from nearly 70% amid softer US activity data and more cautious signals from policymakers about the need for an immediate follow-up move. US consumer confidence fell to its lowest level in more than 12 years in September, while Federal Reserve Bank of New York President John Williams said there was "no need for urgency" after the September rate increase, noting the central bank has time to assess incoming data before deciding on its next move.

Oil prices dropped about 2.5% on Tuesday amid signs that Middle East exports were recovering.