Rupee Recovers on RBI Intervention Despite Rising US Yields and Oil Volatility
The Indian rupee made a recovery against the US dollar on Friday after several sessions of weakness. The USD/INR failed to build on moves above 95.96, despite rising US yields and oil volatility, due in part to the Reserve Bank of India's intervention.
Reuters reported that the RBI likely sold dollars before the local spot market opened, which helped the rupee hold firmer than the 96-per-dollar threshold.
However, the respite was limited as US Treasury yields continued to rise on elevated energy prices and the Federal Reserve's higher-for-longer narrative. The MCX crude for 19 October was down 2.3% at about Rs. 8,950, though it has risen sharply over the past two trading days.
US yields were driven higher by strong activity data and energy costs, with the US 2-year yield up 14bp to around 4.9%, the 10-year above 5.0% and the 30-year beyond 5.4%. Markets were pricing about 37bp of additional Fed tightening by December 2026.
The RBI may face intense pressure to protect local debt markets from capital outflows, given the recent surge in US Treasury yields and their impact on domestic interest rates.