INDIA RUPEE-Rising US yields, oil headwinds put RBI's 96 buffer to the test

By Nimesh Vora

MUMBAI, Sept 29 (Reuters) - The Indian rupee is expected to come under pressure at Tuesday's open, weighed down by higher US yields and oil prices, putting it at risk of slipping past the 96-a-dollar mark, seen as a key near-term support level.

The rupee is expected to open in the 95.99-96.02 range, per traders, after settling at 95.9825 per dollar on Monday.

India’s central bank may be reluctant to see the rupee break past the psychologically important 96-per-dollar mark and could intensify its intervention, having been a near-daily presence in the market in recent weeks, market participants said.

Analysts have noted that the Reserve Bank of India has higher firepower to do so following the recent build-up in foreign exchange reserves from inflows linked to special measures it has introduced.

"The RBI intervention is a given at this point. The real question is whether it is going to keep defending levels, or simply smooth the move and let the rupee adjust more,” a currency trader at a bank said.

The rupee has been under persistent pressure from the stubbornly high oil prices, while a jump in US yields and a hawkish repricing of Federal Reserve policy expectations have compounded the strain. The dollar index is trading near a two-month high.

Markets now see a near 70% probability that the Fed will follow this month’s rate hike with another increase in October, up from less than 20% a month back.

US YIELDS RATCHET HIGHER

US Treasury yields rose on Monday with the surge in oil prices stoking concerns that inflation could prove stickier, raising the prospect of further Fed rate increases. The 10-year US yield climbed 6 basis points to 5.24%, hovering near a nearly two-decade high.

Oil prices rose on Tuesday on concerns over prolonged supply disruptions in the Middle East. O/R