Indian rupee set to draw support from lower U.S. yields as oil surge caps gains

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Rupee support on US yields

Highlights

The rupee closed at 95.26 against the dollar on Thursday and is set to open flat to marginally higher on Friday.
U.S. Treasury 10-year yields have dropped to 4.90%, a 46 basis point decline from their recent peak, pushing the dollar index down to 101.70.
Brent crude futures surged to $117.84 a barrel due to Houthi attacks on Saudi Arabia, intensifying risks to the rupee by elevating India's import bill.

Market drivers ahead of Friday trade

As reported by Reuters, traders expect the rupee to open flat to marginally higher after closing at 95.26 against the dollar on Thursday. The currency is likely to benefit from a retreat in the dollar and a sharp drop in U.S. Treasury yields, even as broader risk aversion remains elevated.

A fresh wave of AI-related concerns is pushing investors toward safer assets, sending U.S. Treasury prices higher and yields lower. The two-year U.S. yield is down 8 basis points to its lowest level in seven weeks, while the 10-year yield has slipped to 4.90%, or 46 basis points below its recent peak.

The dollar is not gaining from the usual safe-haven demand, with the dollar index falling to 101.70 as lower U.S. yields weigh on the currency. Across Asia, currencies are trading flat to modestly higher, while regional equities are following U.S. stocks lower.

Oil pressure limits rupee relief

Sentiment in Asia is also under pressure from another surge in oil prices, driven by concerns over supply disruptions after Yemen's Iran-aligned Houthis stepped up attacks on Saudi Arabia. Brent crude futures have climbed to as high as $117.84 a barrel.

For India, higher oil prices remain a direct risk for the rupee because they can worsen the country's import bill and offset support from softer U.S. yields. A currency trader at a private-sector bank says any benefit from the decline in U.S. yields is likely to be limited because that move is mainly being driven by a flight to safety.

The trader adds that the jump in oil prices is likely to more than offset that relief. He also says the rupee's ability to find support once again depends heavily on intervention by the Reserve Bank of India.

In our previous coverage of the Reserve Bank of India’s rupee-defence efforts, we noted that the RBI has tapped an estimated $75–$80 billion from funds raised via special FX measures since June 8, using spot intervention and swaps. The piece highlighted how high oil prices, rising U.S. Treasury yields, and ongoing foreign equity outflows have intensified pressure on the rupee, while the drawdown in usable reserves has fueled debate about how much room the RBI has to keep defending the currency near key levels.

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