Indian Rupee jumps to weekly high amid lower Oil prices, declining US Yields
- The Indian Rupee strengthens against the US Dollar due to lower Oil prices and declining US Treasury Yields.
- Still-high Oil prices are likely to restrict the upside in the Indian currency.
- The US aims to isolate Iran from the global financial system.
The Indian Rupee (INR) opened almost flat against the US Dollar (USD) on Tuesday, but there is a significant appreciation in India's afternoon trading hours. The USD/INR pair declines to near 95.40, the lowest level seen in over a week, as the Indian Rupee strengthens due to a significant decline in Oil prices and United States (US) Treasury Yields.
During press time, the MCX Crude Oil contract expiring on September 21 is down 3.1% to near Rs. 7,880.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to outperform in a high-oil-price environment.
Oil prices dive due to US shift from military escalation to economic pressure
Oil prices face significant selling pressure as financial markets believe that the shift in the US focus to building economic pressure on Iran rather than accelerating military operations won't be too bad for oil markets.
The shift from military conflict to economic pressure in the U.S.-Israeli war with Iran has reduced some of the oil market’s anxiety. analysts from SaxoBank said, Reuters reports.
On Monday, United States (US) Treasury Secretary Scott Bessent warned of extending economic pressure to isolate Iran from the global financial system. Bessent said that the US is launching "an economic onslaught against Iran's financial connections around the globe". At a press conference, Bessent outlined plans to launch an "economic D-Day" on Iran and stated the US would pursue a "zero leakage" approach to enforcing its sanctions.
US Treasury Secretary Bessent added that every country has been given a defined timeline to shut down activities the Treasury has identified, including closing Iran's bank branches abroad. Where governments fail to act, he said, the US would move unilaterally through Treasury authorities. He made clear the pressure extends to the largest economies, stating that no one, including China, is above the reach of US sanctions.
In response, Iran said that it is fully prepared to counter US economic sanctions, while remaining confident that “Neither China nor Russia had accepted the US measures," predicting “other countries would resist them.”
Brent retreat eases pressure on US Treasuries
Analysts at Deutsche Bank highlight that, “in the absence of material escalation, the resulting dip in oil prices helped bring some relief to bond markets, with US Treasury yields lower across the curve.” As of writing, 10-year yields on US bonds are down 0.6% to near 4.67%. 30-year US Treasury Yields trade 0.55% lower to near 5.2%.
Lower US bond yields improve the appeal of riskier currencies, such as the Indian Rupee.
USD/INR Technical Analysis
USD/INR trades at 95.38, extending a mild bearish bias as spot holds below the 20-day Exponential Moving Average (EMA) at 95.5847. The pair has slipped back from recent highs, and while the 14-day Relative Strength Index (RSI) near 46 stays in neutral territory, it leans slightly to the downside, suggesting selling pressure remains modest but present.
On the downside, immediate focus falls on whether sellers can maintain pressure beneath the 20-day EMA at 95.58, as a sustained break lower from current levels would expose further weakness ahead. On the topside, a recovery back above the 20-day EMA would be needed to ease the current bearish tone and open the door to a broader corrective rebound towards the August 24 high near 96.00.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
