FX.co ★ Rupee Weakens on Fed Hike Bets, Oil

The Indian rupee slipped to around 95.5 per dollar after largely range-bound trade in the previous week, as renewed expectations of a Federal Reserve rate hike lifted the US dollar and drove US Treasury yields higher. Market participants now assign nearly a 60% probability to a September rate increase following hawkish comments from Fed Chair Kevin Warsh, adding pressure on the rupee.

Sentiment was further dampened by higher crude oil prices, with Brent nearing $90 per barrel amid renewed tensions around the Strait of Hormuz. Even so, sustained foreign-currency inflows and ongoing intervention by the Reserve Bank of India (RBI) are expected to cap downside risks for the rupee, with the 95.70–95.80 band viewed as a key support zone.

India’s foreign-exchange reserves climbed to a record $729.33 billion in the week ended August 21, marking the eighth consecutive weekly increase. The buildup reflects the success of RBI measures in attracting close to $73 billion in inflows, including about $65 billion from non-resident Indian (NRI) deposits.