Rupee to extend slide; oil rally, surging US yields chip away at RBI support
The Indian rupee is on course to extend its weekly decline at Friday's open, with the oil rally gathering pace, pushing U.S. Treasury yields higher and fuelling risk aversion.
The rupee is expected to open in the 95.62 to 95.68 range, according to traders, after settling at 95.44 to the dollar on Thursday.
The currency has already lost about 1% over the past three sessions, and a further slide would wipe out the rally that the Reserve Bank of India had helped foster.
The central bank, buoyed by much higher-than-expected deposit inflows from overseas Indians, had helped propel the rupee from near 95.70 to a two-month high of 94.30 last week.
That move is now coming under pressure from oil prices. Brent crude surged more than 6% on Thursday and extended its advance to near $110 a barrel in Asian trading, on intensifying attacks along key shipping routes in the Middle East.
Brent is now up nearly 12% this week, adding to an 8% advance last week.
Oil has moved firmly to the forefront of the factors driving the rupee, a currency trader at a bank said, adding that the RBI appears increasingly reluctant to lean heavily against the currency's weakness over the last few days.
"There is little point in supporting the rupee aggressively when the negative forces are this intense," the trader said.
India relies heavily on imports to meet its crude requirements and a sustained rise can worsen its external balances, and hit growth and inflation.
US YIELDS ADD TO WOES
U.S. Treasury yields climbed after inflation data strengthened expectations that the Federal Reserve could raise rates next week, while the surge in oil prices added to inflation concerns.
The U.S. producer price index for final demand rose 0.4% last month after an upwardly revised 0.1% increase in July. Markets are now pricing about a 70% chance of a Fed rate hike next week, pushing the 10-year U.S. yields to near 5%.
Asian equities slumped and currencies were mostly lower.
