Mumbai: The Indian rupee came under renewed pressure on Thursday, trading close to ₹96 against the US dollar as a stronger dollar and rising US Treasury yields kept pressure on the currency.
The rupee weakened about 0.16 per cent to ₹95.9850 against the dollar during trading. State run Indian banks were seen selling dollars, likely on behalf of the Reserve Bank of India, helping to limit the rupee's losses.
The rupee has repeatedly come under pressure around the ₹96 level in recent trading sessions. It touched ₹96.1475 on September 29 before recovering.
The latest weakness came as the US dollar strengthened against several Asian currencies. The dollar index reached a more than three month high, while US Treasury yields continued to rise.
The yield on the benchmark 10 year US Treasury note touched 5.31 per cent, its highest level since 2007. Higher US yields can make dollar assets more attractive to investors and put pressure on currencies in emerging markets such as India.
The strength of the dollar has remained an important concern for the rupee as markets assess the future direction of US monetary policy. The US Federal Reserve raised its policy rate by 25 basis points in September, taking its target range to 3.75 per cent to 4 per cent.
Markets are assessing whether the Federal Reserve could tighten policy further, with one rate increase fully priced in for December according to market expectations. However, this remains a market expectation and is not a confirmed decision by the Federal Reserve.
US inflation data were softer than expected in August, but the dollar received little relief as Treasury yields remained high.
Oil prices remain another important factor for India. The country relies heavily on imported crude, so higher international oil prices can increase its import bill and demand for dollars.
Oil prices have been highly volatile in recent days because of developments involving the Middle East and uncertainty surrounding US Iran diplomacy. Brent crude had climbed above $100 a barrel in recent sessions but later eased from its highs as markets assessed Gulf exports and developments in US Iran diplomacy.
The easing in oil prices has provided some relief, but it has not removed pressure on the rupee because of continued dollar strength and high US borrowing costs.
The Reserve Bank of India is also facing an important policy decision. Its Monetary Policy Committee is scheduled to meet from October 5 to 7, with the policy decision expected on October 7.
The RBI's repo rate is currently 5.25 per cent. Markets widely expect the central bank to raise the repo rate by 25 basis points, although the decision has not been announced.
The central bank will be assessing inflation, economic growth and external risks as it prepares for the meeting. Higher oil prices and global financial conditions remain important factors for the outlook.
India's foreign exchange reserves stood at $765.9 billion as of September 18, according to the latest figure cited in government and market reports. The reserves provide a substantial buffer as the central bank manages pressure on the rupee.
The currency market is now closely watching the ₹96 level, along with movements in US Treasury yields, oil prices and the dollar. The RBI's response and next week's monetary policy decision could influence market sentiment and the direction of the rupee.