The Indian rupee is expected to edge higher at Monday’s open as investors reduce expectations of a Federal Reserve rate hike next month following an unexpectedly weak US jobs report. Continued intervention by the Reserve Bank of India is also expected to support the currency and limit the impact of higher oil prices amid uncertainty over the reopening of the Strait of Hormuz.
The rupee is expected to open at around 95.14-95.16 to the dollar, according to traders, after settling at 95.2075 on Friday. The Indian currency has been in recovery mode over the past two weeks, supported by regular intervention from the RBI as authorities seek to contain pressure on the exchange rate.
Oil prices remain a key source of uncertainty for the rupee. Brent crude was quoting at $84.50 a barrel on Monday, well below its recent high of $100, giving the Indian currency some breathing room despite continued volatility in energy markets. The outlook remains closely tied to developments surrounding the Strait of Hormuz, where uncertainty over reopening has kept oil prices elevated.
The RBI’s intervention was again in focus on Friday when the central bank stepped in at the open, signalling that it would not allow uncertainty over oil prices to translate into unchecked pressure on the rupee.
The central bank’s willingness to intervene at current levels also indicates that it wants to push the dollar/rupee exchange rate lower, according to a currency trader at a bank.
“How much further downside depends on oil and whether there is actually enough appetite to sell dollars at these levels,” the trader said.
The immediate direction of oil prices remains uncertain. Oil rose on Monday as the reopening of the Strait of Hormuz remained unresolved. Iran said an agreement with Oman on new shipping lanes was close to completion, while Washington still needs to meet other conditions set by Tehran.
For India, developments around the strait remain particularly important because continued uncertainty over the waterway can add to volatility in global oil markets and increase pressure on the rupee. However, the currency’s recent recovery and the RBI’s continued presence in the market have helped provide some protection against those pressures.
Meanwhile, global expectations for US monetary policy have shifted following Friday’s employment data. US employers unexpectedly shed 23,000 jobs in July, sharply contrasting with economists polled by Reuters who had expected employers to add 80,000 jobs.
The weaker labour market data prompted investors to reduce their expectations of a Federal Reserve rate increase at next month’s meeting. Fed funds futures now imply a 44% probability of a rate hike at the Fed’s September meeting, down from 55% before the employment figures were released.
The change in expectations has strengthened the rupee’s immediate outlook by reducing pressure associated with a potentially stronger US dollar and higher US interest rates. With the RBI continuing to intervene and oil prices remaining below their recent peak, the Indian currency enters the week with several factors providing support, although developments in the Strait of Hormuz and global energy markets remain significant risks.
