Rupee weakens to near 96 as oil prices, US yields surge

The rupee extended its downward slide on Tuesday, settling at 95.96 per dollar as investors dumped the domestic currency alongside Indian government bonds. The sell-off reflected heightened concerns over crude oil import costs and the widening gap between Indian and US bond yields.

Benchmark 10-year government bond yields climbed 6 basis points to 7.11 per cent, marking their highest level since May 21. The jump in domestic yields reflects a broader shift in sentiment as investors reassess risk amid global rate pressures and elevated energy prices.

Crude oil futures extended gains on international markets, adding to import pressures for India, which meets most of its petroleum demand through overseas purchases. Higher crude costs threaten to widen the current account deficit and add to inflationary pressures in the economy.

US Treasury yields have remained elevated, making dollar-denominated assets more attractive to international investors and drawing capital away from emerging markets. The interest rate differential between US and Indian bonds has widened, creating headwinds for the rupee and prompting portfolio reallocation away from Indian debt.

Analysts say the rupee's weakness could persist as long as crude prices remain elevated and the US Federal Reserve maintains its hawkish stance on inflation. The combination of external headwinds and domestic rate pressures has created a challenging environment for the Indian currency and fixed-income markets.