Indian Rupee falls as US Treasury Yields surge
- The Indian Rupee drops against the US Dollar as surging US bond yields diminish the appeal of risky currencies.
- Investors await the US ADP Employment Change, ISM Manufacturing PMI, and the NFP data for June.
- Lower oil prices will likely limit the Indian Rupee’s downside.
The Indian Rupee (INR) opens lower against the US Dollar (USD) on Wednesday. The USD/INR pair rises to near 94.72 as stronger United States (US) Treasury Yields and higher US Dollar have diminished the appeal of risk-sensitive currencies. However, the downside in the Indian currency is expected to remain limited as oil prices remain lower.
During press time, 10-year US Treasury Yields trade 0.18% higher to near 4.47%. On Tuesday, US bond yields surged a little over 2%, following strong US JOLTS Job Openings data for May. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is up 0.16% to near 101.33.
On Tuesday, the US Bureau of Labor Statistics reported that employers posted 7.594 million fresh jobs, higher than the estimated 7.3 million and the previous reading of 7.585 million.
Investors keenly await US NFP data
This week, the major trigger for USD/INR will be the US Nonfarm Payrolls (NFP) data for June, which will be released on Thursday. The significance of the US official employment data over the Federal Reserve’s (Fed) interest rate expectations is expected to be high, as the latest remarks from Fed Chair Kevin Warsh showed that he would refrain from delivering forward-looking guidance in the current policy conjuncture.
Currently, the CME FedWatch tool shows an over 82% chance that the Fed will deliver at least one interest rate hike this year.
The US NFP report is expected to show that the economy created 110K fresh jobs, lower than 172K in May. The Unemployment Rate is seen remaining steady at 4.3%.
In Wednesday’s session, investors will focus on the US ADP Employment Change and the ISM Manufacturing PMI data for June, which will be released during the North American session.
According to estimates, the US private sector created 113K fresh jobs, slightly lower than 122K in May. The ISM Manufacturing PMI is expected to remain steady at 54.0.
Oil prices remain contained despite uncertainty over Hormuz future
The MCX Crude Oil contract expiring on July 20 remains close to its lowest level in months at around 6,500, as energy flows through the Strait of Hormuz, a critical chokepoint to almost one-fifth of global energy supply, have increased. However, Iran’s multiple attempts for global recognition of its authority near the chokepoint have renewed concerns over energy supply disruption.
On Tuesday, negotiation teams from the US and Iran were scheduled to meet in Oman to discuss the Hormuz situation. However, the meeting didn’t take place as Washington refused to have direct talks with Iran, citing that it would only meet through mediators despite landing in Oman.
Technical Analysis: USD/INR remains inside Descending Triangle formation
USD/INR trades higher at around 94.670, while keeping a mildly bearish near-term tone as it holds below the 20-period Exponential Moving Average (EMA) at 94.7753 and under the downward-sloping border of the descending triangle pattern plotted from 97.02. The pair still leans on the horizontal support of the above-mentioned chart pattern drawn from near 94.03, suggesting ongoing but fragile demand, while the Relative Strength Index (RSI) around 47 hints at consolidative downside pressure rather than a decisive trend.
On the topside, initial resistance is seen at the 20-period EMA clustered near 94.78, with the former trendline break region around 95.03 acting as the next barrier, ahead of the broader descending trend cap nearer 97.02. On the downside, immediate support is defined by the trendline break zone at approximately 94.12 and then closer to the structural origin of the uptrend around 94.03, where a break would reinforce a fresh leg of downside.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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