Rupee under pressure from oil, US yields despite RBI support and growth case

The Indian rupee opened Thursday morning under siege from two directions at once: crude oil climbing again and the US dollar strengthening on the back of rising interest rate expectations. Traders expected the rupee to slip to around 95.85 to 95.87 per dollar, a meaningful drop from where it had closed the previous session at 95.74. The Reserve Bank of India was already in the market, trying to cushion the fall, but the headwinds were real.

The pressure had built overnight. A stronger-than-expected reading on US manufacturing activity spooked markets, and when the Treasury Department auctioned five-year notes, investors bid reluctantly—a sign of weak demand that sent yields spiking. The five-year yield broke above 5 percent for the first time since 2007. The ten-year yield jumped more than fifteen basis points in a single session. Across Asia, currencies without deep ties to technology stocks and with heavy exposure to energy costs were taking a beating. India fit that profile uncomfortably well.

The damage to investor appetite was visible in the numbers. Foreign investors had pulled $3.5 billion out of Indian stocks and bonds already this month, a net outflow that suggested they were chasing returns elsewhere—particularly in US markets where rates were climbing and the dollar was strengthening. It was a classic pattern: when US yields rise, money flows back to America, and emerging market currencies weaken as a result.

But there was a counterargument, and it came from inside India's central bank. Poonam Gupta, a deputy governor at the Reserve Bank of India, delivered a speech on Wednesday that amounted to a public case for why the rupee's weakness did not match the country's actual economic performance. India's economy had performed exceptionally well, she said. The disconnect between that real-world strength and what was happening in financial markets seemed to her a temporary mismatch, driven by investors chasing short-term gains in competing markets rather than any fundamental deterioration in India's position.

Gupta went further. The current market dynamics, she argued, were not especially well-founded. There was, in her view, a fair case not just for the rupee to stabilize but actually to appreciate from current levels. The weakness that had accumulated since March 2025 was a temporary phenomenon, she suggested—a storm that would pass. The RBI's repeated interventions in the market were already helping to prevent the rupee from sliding past the 96 mark, traders noted. The question was whether those interventions could hold the line while external pressures remained intense, or whether the central bank's argument about underlying strength would eventually win out.