The Indian rupee is expected to open weaker this Tuesday, trading between 95.68 and 95.72 against the US dollar. This follows a closing rate of 95.6025 on Monday. Several factors are hitting the rupee at once, including rising crude oil prices and high US bond yields (the interest paid on US government debt). Domestic policy changes are also playing a major role in this sudden shift.

The Reserve Bank of India (RBI) recently surprised the market by changing the deadline for its swap facility. This facility involves deposits raised from Non-Resident Indians (NRIs). The RBI has brought the deadline forward to August 31, shortening the window by a full month. This move caught many bank officers off guard, causing the rupee to drop past the 95.50 mark on Monday even though the dollar was weak globally.

External factors are adding to the local stress. Brent crude oil has climbed past $91 per barrel. This happened after a truce between the US and Iran expired, leading to fears of military conflict. When oil prices rise, India has to spend more dollars to import fuel, which puts downward pressure on the rupee. High oil prices also lead to higher US Treasury yields, which have reached their highest levels in over twenty years.

For bank officers in India, this means a very "challenging" outlook for the forex (foreign exchange) desk. Even though the RBI intervened to try and support the currency, the rupee continued to decline. Private sector bank traders suggest that the RBI's decision to shorten the swap window has made the currency's position much weaker than it was just a week ago.

Across Asia, the mood is negative for currencies that are sensitive to oil prices. Even though many experts believe the US Federal Reserve might not raise interest rates next month, the rising bond yields are still drawing investors away from emerging markets like India. When US yields are high, global investors prefer to keep their money in dollars rather than in rupees.

Customers who deal in imports and exports should be prepared for more volatility (rapid price changes). As oil stays above $90, the downside risks for the rupee remain high. Bankers should watch the August 31 deadline closely, as the closing of the NRI swap window could lead to more liquidity shifts in the coming weeks. The next few days will show if the RBI takes further steps to stabilize the market.