Indian Rupee sinks into yet another record low on surging Treasury yields, oil prices

FUNDAMENTAL OVERVIEW

USD:

The US dollar extended the gains across the board in the final part of last week as markets started to grow impatient amid the prolonged US-Iran stalemate and Strait of Hormuz closure. Treasury yields came into spotlight as they broke March highs on increasing inflation worries and potentially hawkish Fed.

The Fed is slowly abandoning the easing bias with more and more policymakers talking about the need of keeping all options on the table, and some explicitly bringing up rate hikes. In the short-term, the reopening of the Strait could weigh on the greenback as oil prices will likely fall quickly and rate cut bets will increase.

After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021.

There’s also another scenario where the Strait remains closed for longer and oil prices stay elevated, with the risk that the Fed turns hawkish anyway and gives the greenback a strong boost given the bearish positioning on the dollar.

INR:

On the INR side, the prolonged US-Iran stalemate and reports of potential resumption of hostilities continued to weigh on the Indian Rupee, which dropped to new record lows against the dollar.

In the short-term, the Rupee has been closely correlated with oil prices, so positive developments on the US-Iran front should keep giving the INR a boost. Conversely, extended stalemate or further escalations will likely keep weighing on the currency and push it into new record lows.

In the big picture, the Indian Rupee remains on a bearish structural trend against the US dollar, so the dip-buyers will likely look for opportunities around strong technical levels to keep pushing the USD/INR pair into new highs.

USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can see that USDINR broke above the March high and extended the rally amid the prolonged US-Iran stalemate. If the price were to fall back below the 96.00 support, we can expect the sellers to extend the pullback into the trendline around the 95.00 handle.

USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we have a minor upward trendline defining the current bullish momentum. The buyers will likely continue to lean on the trendline with a defined risk below the support to keep pushing into new highs. The sellers, on the other hand, will want to see the price breaking below the support to pile in for a drop into the major trendline.

USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, there’s not much we can add as from a risk management perspective, the buyers will have better risk to reward setups around the trendline or the support. The sellers, on the other hand, will need to wait for a break below the support as there’s no fundamental backing for a correction at the moment.

UPCOMING CATALYSTS

On Wednesday, we have the FOMC meeting minutes. On Thursday, we get the latest US Jobless Claims figures and the US Flash PMIs.