Indian Rupee Eyes Relief Amid Oil Drop and Fed Hike Bets Fade

The Indian rupee is poised for a brief respite on Monday, supported by softer oil prices and reduced expectations of a Federal Reserve rate hike in October. Traders anticipate the rupee will open between 96.22 and 96.26 per dollar, after closing at 96.3150 on Thursday. The currency has faced persistent pressure, recently hitting a two-month low as it breached the 96-per-dollar mark for the first time. The Reserve Bank of India (RBI) has intervened to slow the decline, but traders warn that further weakening is likely now that the 96-level has been surpassed.

The probability of a Fed rate hike this month has dropped to around 20%, following weaker-than-expected U.S. jobs data. While initial market reactions saw Treasury yields dip, the move later reversed, reflecting ongoing inflation concerns. Morgan Stanley noted that investors remain cautious about reading too much into a single employment report given persistent inflation risks. This suggests any relief for the rupee from shifting Fed expectations may be temporary.

Meanwhile, oil prices have eased on Monday due to increased exports from the Middle East and supply releases by the Group of Seven nations. This decline in oil prices could provide some additional support to the rupee, though traders remain wary of further depreciation.