Indian Rupee Eyes Relief as Oil Prices Dip and Fed Hike Odds Fall

The Indian rupee is poised for a modest rebound on Monday, supported by lower oil prices and reduced expectations of an October Federal Reserve rate hike. Traders anticipate the rupee will open between 96.22 and 96.26 per dollar, following its close at 96.3150 on Thursday, after a market holiday on Friday. The currency has faced persistent pressure, recently dipping to a two-month low above 96 per dollar, driven by rising US Treasury yields and high oil prices.

The Reserve Bank of India (RBI) has intervened to slow the rupee's decline, but traders now see greater potential for further weakness after the 96-per-dollar level was breached. A currency trader at a private sector bank noted that the slight improvement in the rupee's outlook reflects expectations of RBI intervention, though the breach of the 96 mark increases the likelihood of more depreciation.

Meanwhile, the probability of a Fed rate hike in October has dropped to around 20% after weaker-than-expected US job growth. While investors initially bought Treasuries in response, that trend reversed, highlighting persistent inflation concerns. Morgan Stanley observed that investors remain cautious about reading too much into a single employment report while inflation risks persist, suggesting any relief for the rupee from shifting Fed expectations may be short-lived.

Oil prices also eased on Monday, with rising exports from the Middle East and stock releases by Group of Seven nations easing supply worries. This decline in oil prices could provide some additional relief for the rupee, though traders remain wary of sustained weakness due to broader economic pressures.