The Indian rupee is expected to open weaker at the start of the week as investors sharply increase their expectations for a Federal Reserve rate hike at the September meeting.

According to traders, the rupee is expected to open in the 95.55–95.60 per U.S. dollar range, after closing at 95.3775 per dollar on Friday.

Fed Rate-Hike Odds Rise to Nearly 60%

The probability of a Fed rate hike at the September 15–16 meeting has climbed to nearly 60%, up from around 35% before Fed Chair Kevin Warsh’s speech.

In his remarks on Friday, Warsh said the Fed would still “have work to do” if policymakers were unable to gain confidence that inflation was moving back toward the 2% target.

According to ING Bank, Warsh struck a clearly more hawkish tone, particularly by stressing that price stability does not happen automatically and that it is the Fed’s responsibility to deliver stable prices.

Stronger Dollar and Higher Treasury Yields Add Pressure

Following Warsh’s remarks, the U.S. dollar index and Treasury yields moved higher, while U.S. equities declined.

U.S. equity futures also pointed to further weakness when markets reopen on Monday.

However, the spillover into Asian currencies remained relatively limited, with the largest moves in the region restricted to around 0.2%.

Oil Near $90 Adds Another Risk for the Rupee

Apart from Fed-related pressure, the rupee is also facing risks from higher oil prices.

Brent crude climbed to around $90 per barrel after the U.S. attacked an Iranian island in the Strait of Hormuz, prompting retaliation from Tehran.

Higher oil prices are particularly important for India because of its heavy dependence on energy imports. More expensive crude can increase demand for U.S. dollars and place additional pressure on the rupee.

RBI Expected to Defend the 95.70–95.80 Zone

According to a currency trader at a bank, the market views the 95.70–95.80 per dollar area as a well-defended zone.

The Reserve Bank of India (RBI) is expected to lean against any move toward these levels in an effort to limit excessive volatility in the currency.

Near-Term Outlook

In the short term, the rupee is facing pressure from two main forces:

Higher Fed rate-hike expectations → stronger U.S. dollar and higher Treasury yields → weaker rupee

At the same time:

Higher oil prices → stronger import-related dollar demand in India

As a result, the rupee’s next move will largely depend on Fed rate expectations, oil prices, and the extent of RBI intervention near the 95.70–95.80 zone.

This article is for informational and market commentary purposes only and should not be considered investment advice.

Source: Reuters