CURRENCY OVERVIEW

The Indian Rupee opens flat this morning and is expected to trade in a narrow range this week, supported by portfolio inflows and central bank intervention, though strong importer hedging and elevated oil prices amid Middle East conflict may cap gains. Bond yields may edge higher as investors focus on the Reserve Bank of India's liquidity withdrawal. The rupee closed at 95.8725 ‌per dollar on Friday, down 0.3% for the week. Investors will closely watch developments in the Middle East and their impact on oil prices and global inflation. Higher oil prices widen India's import bill and weigh on the rupee, while equity-related inflows may offer limited support amid steady importer dollar demand. Traders expect the rupee to trade between 95.30 and 96.00 this week. Oil prices slipped on Monday but held above $100 as Iran and the United States exchanged new threats while investors assessed the recovery in energy shipments from Saudi Arabia. Brent prices were down 2% at $101.7 per barrel. Hopes of a diplomatic solution to the Iran war amid the UN meet this week also helped cool prices. The central bank's capital inflow measures, which included sops for raising overseas FX deposits and borrowings, have helped lift India's FX ‌reserves to about $781 billion — granting the central bank firepower to fund the current account gap and limit rupee depreciation. Currency markets focused on the yen on Monday following a sharp drop last week that spurred speculation of a rate check from Tokyo, while investors pondered interest-rate outlooks after a wave of hikes from major central banks last ‌week. The yen was a touch firmer at 156.64 per US dollar after dropping 2% last week. Japan markets were closed for a three-day holiday, leading to low liquidity while keeping traders on alert for an official intervention to prop up the volatile currency. The Bank of Japan raised rates on Friday to their highest level in 31 years to 1.25%, yet the widely expected move did not boost the yen as two dissenting votes and a lack of explicitly hawkish guidance disappointed investors. The euro was little changed at $1.1482 after voting projections showed the far-right Alternative for Germany (AfD) took first place in state elections in northeastern Germany, in a blow to Chancellor Friedrich Merz's conservative party. The dollar index , which tracks the US currency against six major peers, was steady at 100.23 after gaining more than 1% last week following the Fed's rate hike, as the central bank signalled more increases could be coming. Traders are currently pricing in a 55% chance of a ?rate hike at the Fed's next meeting in October, up from 42.5% a week earlier, the CME FedWatch tool showed. Oil prices eased even as Iran and the United States exchanged new threats and after the Houthis attacked Saudi Arabia's capital. Brent fell 2.1% to $101.63 a barrel, while US crude dropped 2.1% to $98.15.