Oil, foreign flows in focus for rupee as bond traders eye rate hikes

The Indian rupee is expected to remain range-bound this week as traders monitor crude oil prices, foreign investment flows and further measures by the Reserve Bank of India to support the currency, while government bond yields face pressure from rising interest-rate expectations.

The rupee gained 2% last week, which was its best weekly gain since March, to settle at 94.96 levels against the US dollar on Friday, news agency Reuters reported. Traders see the rupee trading in a range of 94-95.50 in the coming sessions.

The RBI has taken various steps to restrict dollar demand by raising costs of Forex hedging for importers and creating an exclusive dollar window to state-run oil companies.

Last week Brent briefly went over $110 a barrel, raising fears of imported inflation and putting more pressure on the rupee. Foreign portfolio flows and the unfolding situation in the Middle East are also expected to keep market sentiment volatile.

Meanwhile, bond yields of Indian government bonds could rise further as traders take into account the risk of more monetary tightening. The 10-year benchmark bond yield settled at 7.3789% on Friday, up for the ninth straight week.

Expectations for oil prices, risks of inflation and more RBI hints to influence currency and bond markets trading this week.