The Indian Rupee (INR) continued its decline against the US Dollar (USD) on Tuesday, with the USD/INR pair rising to near 95.85 in the opening session, extending the previous week’s losses [1]. This depreciation was attributed to surging US Treasury Yields, which have reached a little over 5%, a level last seen in October 2023, amid firm expectations that the Federal Reserve will hike interest rates in its upcoming policy announcement on Wednesday [1]. The US Dollar Index (DXY), which measures the Greenback against six major currencies, was up 0.15% to near 99.62 at press time, reflecting the strengthening of the US Dollar [1].
The rally in US Treasury Yields has been driven by hotter-than-expected US Producer Price Index (PPI) and persistent Consumer Price Index (CPI) data for August, fueling expectations of a hawkish stance from the Federal Reserve [1]. Economists at ING have revised their outlook to anticipate a 25 basis point rate hike in September, following Chair Kevin Warsh’s address at the Jackson Hole symposium, and suggest that this may be the only hike, despite market pricing for two and a half further rate hikes after the expected September move [1].
Oil prices have also remained elevated, with the MCX Crude Oil contract expiring on September 21 up 1.8% to near Rs. 9,900 in the opening session, close to its multi-month high of Rs. 10,043 posted on Friday [1]. The rise in oil prices is linked to the precautionary shutdown of a major Saudi pipeline after recent attacks and the postponement of a planned meeting between Iran and other Gulf states regarding a temporary shipping corridor through the Strait of Hormuz, heightening concerns over regional supply security and key shipping routes [1].
Currencies of economies heavily reliant on oil imports, such as India, tend to underperform in a high-oil-price environment, compounding the pressure on the Rupee [1]. Additionally, India’s retail CPI was reported to have risen at a slightly faster-than-expected pace on Monday, according to the Ministry of Statistics and Programme Implementation [1].
CONCLUSION
The Indian Rupee's decline is being driven by a combination of surging US Treasury Yields, a stronger US Dollar, and elevated oil prices, all of which are weighing on the currency. Market participants are closely watching the upcoming Federal Reserve policy announcement for further direction, while ongoing energy supply concerns continue to pose risks for oil-importing economies like India.