USD/INR trades lower around 82.20 on RBI intervention hopes

USD/INR attempts to snap the winning streak that began on September 12, trading lower around 83.20 during the Asian session on Wednesday.

However, the pair experienced upward support driven by the higher US Treasury yields. The pair could break the intraday high at 83.29, followed by the 83.50 psychological level. However, market participants expect the Reserve Bank of India (RBI) to intervene by selling US Dollar (USD), attempting to slow down the USD rally.

Additionally, elevated Crude oil prices exert downward pressure on the Indian Rupee (INR) because India relies heavily on oil imports to meet its energy needs. Moreover, the surge in oil prices is widening India’s trade deficit gap.

US Dollar Index (DXY) witnessed a fluctuating pattern during the American trading session on Tuesday. Initially, it dipped to 104.80 in response to worsening market sentiment. However, it swiftly rebounded due to the uptick in US Treasury yields, surpassing the 105.00 level once again.

DXY trades higher near 105.20 at the time of writing, reinforced by higher US Treasury bond yields. The US 10-year Treasury yield stands at 4.36% by the press time, below its highest level in 16 years.

Investors expect that the US Federal Reserve (Fed) will maintain interest rates within the existing 5.25%-5.50% range in September. Moreover, as per the CME FedWatch Tool, the odds of another rate hike during the November and December meetings have been reduced.

However, the market sentiment appears to be that the Fed will keep higher policy rates for a prolonged period could bolster the Greenback. This is attributed to the resilience of the US economy, marked by the easing of inflationary pressures and consistent labor market growth.

According to a Reuters report, US Treasury Secretary Janet Yellen mentioned on Tuesday that, as the economy is operating at full employment, it's essential for US growth to slow down to a pace that aligns with its potential growth rate in order to bring inflation back to target levels.

Yellen also said "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

Traders will likely watch the "dot plots" to assess the anticipated interest rate trajectory. According to the most recent Summary of Economic Projections (SEP), the median estimate from the Fed suggests that interest rates could potentially reach a peak of 5.6%.