Oil prices regained most of Tuesday's losses after hopes for a US-Iran deal failed to materialize, reversing the rally that had lifted the Indian rupee. The rebound pushed USD/INR back toward the top of its recent range, with the pair now trading between 95.10 support and 96.10 resistance. Traders are watching for a potential US-Iran agreement in the coming days alongside Fed Chair Warsh's Jackson Hole speech.
Oil erases Tuesday's losses as Iran talks stall
Oil prices sold off on Tuesday after positive signals on US-Iran talks raised hopes for a peace deal, or at least a return to memorandum-of-understanding conditions. But without an actual agreement in hand, oil erased most of those Tuesday losses as the week progressed, regaining the ground it had given up on the earlier optimism.
Rupee reaction reflects India's oil dependence
The bounce in oil had an echo in currency markets. India imports most of its oil, so higher prices increase demand for US dollars, widen the country's trade deficit, and pressure its external balances. The rupee had rallied on Tuesday as oil sold off, but did not trade the following day because of a bank holiday. When it reopened, USD/INR opened much higher as oil's rebound erased most of the rupee's earlier gains. In the short term, the rupee is expected to keep tracking oil prices, potentially ranging until the US and Iran reach an agreement and the Strait of Hormuz reopens.
Dollar backdrop adds pressure
The move also comes against a firmer dollar. The greenback strengthened across the board after US PCE data showed core figures in line with forecasts, while market pricing for a September rate hike held steady at 35%. On the daily chart, USD/INR is trading between 95.10 support and 96.10 resistance, with buyers eyeing a pullback toward the 95.60 area as a potential entry.
What comes next
Traders now turn to a run of catalysts: US jobless claims figures due today, Fed Chair Warsh's speech at the Jackson Hole Symposium tomorrow, and the US CPI report on September 11. A US-Iran deal remains the key swing factor for oil, and by extension for the rupee, in the days ahead.
Source: InvestingLive
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