Rupee Opens Marginally Lower At 94.69 Against U.S. Dollar

The Indian rupee started Tuesday’s session slightly weaker, opening at 94.69 against the U.S. dollar, down by 1 paise from the previous close, even as easing crude oil prices provided some support to the domestic currency.

According to Reuters, the rupee’s decline on Monday was not linked to any major dollar demand or large capital flows and came as a surprise to currency market participants, who had expected the currency to remain stable.

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Fed Outlook Takes Centre Stage

Currency dealers told Reuters that attention in the foreign exchange market has gradually shifted from oil prices to the monetary policy outlook in the United States.

With Brent crude remaining below the $80-a-barrel mark, concerns over energy prices have eased. Instead, rising U.S. Treasury yields and expectations of tighter monetary policy have emerged as key factors influencing Asian currencies, including the rupee.

A currency trader at a private sector bank told Reuters that the focus for the rupee has moved from crude oil to the U.S. Federal Reserve. The trader said elevated U.S. bond yields are posing a bigger challenge for the domestic currency as oil prices remain relatively contained.

Exporter Activity Picks Up

Reuters reported that exporter hedging activity has increased in recent sessions. However, demand for dollars has continued to remain firm, limiting support for the rupee.

The domestic currency had weakened in the previous session despite softer crude oil prices and an easing of geopolitical concerns after progress in negotiations between Washington and Tehran.

U.S. Bond Yields Rise

U.S. Treasury yields moved higher on Monday, reflecting growing expectations that the Federal Reserve could tighten policy further later this year.

The benchmark two-year Treasury yield climbed to its highest level in 16 months as investors reassessed the interest-rate outlook. Fed funds futures currently imply nearly a 75% probability of a rate increase by September.

Higher U.S. yields tend to support the dollar and can trigger outflows from emerging markets, putting pressure on local currencies.

Crude Prices Remain Supportive

Crude oil prices have become soft in recent sessions amid optimism on the progress being made on talks between the U.S. and Iran. Brent crude prices have mostly remained below $80 per barrel, thereby easing the worry of imported inflation as well as benefiting oil importing nations like India.

Market players will now monitor the situation regarding U.S. monetary policy, treasury yields, as well as commodity prices, since it is expected to dictate the movement in rupee going forward.