Rupee Fights for Stability Amid Oil Price Hikes and US Rate Expectations

After an initial bout of rupee outperformance, driven by intervention and inflows, the USD/INR has settled into a range around the mid-94 handle. The DBS Group Research notes that oil prices are creeping higher, and the dollar is benefiting from US rate hike expectations.

This has led to shallow pullback attempts in the USD/INR, according to the research group. However, recent inflows have given the authorities additional firepower, which has helped to lower the tail risk of a sharp one-sided depreciation in the currency in the near-term.

August inflation is due next week, and it could quicken to 4.8-4.9% from 4.4% month before, on a broader rise in food prices apart from a pick-up in precious metals, pushing up core as well.