Rupee Weakens on Fed Hike Bets, Oil

The Indian rupee weakened to around 95.5 per dollar, after trading largely flat in the previous week, as renewed expectations of a Federal Reserve rate hike strengthened the dollar and pushed US Treasury yields higher. Markets raised the probability of a September rate increase to nearly 60% following hawkish remarks from Fed Chair Kevin Warsh, increasing pressure on the rupee. Higher crude prices also weighed on sentiment, with Brent approaching $90 a barrel amid renewed tensions around the Strait of Hormuz. However, persistent foreign-currency inflows and RBI intervention are expected to limit the currency's downside, with the 95.70-95.80 zone seen as a well-defended level. India's forex reserves reached a record $729.33 billion in the week to August 21, rising for an eighth straight week as RBI measures attracted nearly $73 billion in inflows, including about $65 billion from non-resident Indian deposits.

The Indian rupee hovered around 95.4 per dollar, mostly trading in a tight range for the whole week as persistent Reserve Bank of India intervention and steady importer dollar demand kept the currency anchored. The rupee traded between 95.40 and 95.75 this week, as importer demand supported the lower end while RBI intervention limited downside. Oil prices near $90 a barrel have also been largely absorbed by the market, while the dollar remained steady near a one-week high ahead of Fed Chair Kevin Warsh’s closely watched Jackson Hole speech. Meanwhile, the RBI gave banks greater flexibility to swap dollars raised through FCNR(B) deposits, allowing transactions above $100 million outside their designated weekly window to manage a surge in dollar liquidity. The special deposit scheme has attracted more than $65 billion ahead of its August 31 deadline, strengthening the RBI’s ability to manage rupee volatility.

The Indian rupee steadied to around 95.4 per dollar, hovering near two-week highs after the holiday break as lower oil prices and sustained Reserve Bank of India intervention offset expectations of a Federal Reserve rate hike next month and persistent dollar demand for hedging. The rupee had settled 0.35% higher on Tuesday before FX and money markets closed for a holiday on Wednesday. Brent crude extended its decline to around $87.30 a barrel, while the RBI has intervened almost daily over the past two weeks, particularly when USD/INR moved toward the 95.60-95.80 range, limiting gains in the dollar. Meanwhile, the dollar index held near an eight-day high after US inflation data revived expectations of a September Fed rate hike, with markets awaiting Fed Chair Kevin Warsh's speech at Jackson Hole for further clues on the interest-rate outlook. Persistent importer dollar demand is also expected to limit further downside in USD/INR.