USD/INR stays skewed to the upside as rising oil prices weigh on the rupee and hawkish Fed rate-hike bets keep the dollar bid. A breakthrough in the US-Iran talks now underway through mediators could reverse the move quickly, pulling the pair back toward support.
Hawkish Fed bets keep the dollar bid
The US dollar has been supported by a hawkish repricing in interest rate expectations triggered by strong economic data and renewed US-Iran tensions. The bullish momentum accelerated last Wednesday when Trump poured cold water on hopes for an earlier end to the Iran war, reiterating that the US would strike a deal with Tehran only after the November elections.
The same day, a very strong set of US Flash PMIs sent Treasury yields to new highs and pushed the odds of an October rate hike to roughly 70%.
Iran talks swing between hope and rejection
Hopes for a US-Iran deal returned heading into the weekend after Iran sent a proposal to reopen the Strait of Hormuz within seven days on certain conditions. Trump rejected the proposal on Saturday, however, telling reporters he expected to resume bombing Iran after the midterms.
Positive headlines returned during Monday's American session, pointing to possible US concessions. According to Axios, Trump reportedly offered Iran sanctions relief and access to frozen funds in exchange for progress on its nuclear program, though he later denied the reports. He did confirm that American and Iranian negotiators are talking through mediators, and Iranian Foreign Minister Araghchi said he expected a formal answer today to Tehran's Hormuz proposal.
Rupee pressured by the oil import bill
The rupee keeps following oil prices, and the latest upside in crude, driven by waning hopes for a quick deal, is weighing on the currency. Higher oil prices hurt the rupee because India imports most of its crude, so a larger oil bill increases dollar demand and widens the trade deficit.
A breakthrough should boost the rupee, and USD/INR could drop back to the 95.10 support fairly quickly. A negative outcome or re-escalation, on the other hand, would likely keep pushing the pair to new highs. In the bigger picture, the rupee remains on a bearish structural trend against the dollar, so dip-buyers keep looking for entries around major technical levels.
Chart points to fresh record highs
On the daily chart, USD/INR broke above the major resistance zone around 96.10, opening the door to a rally into new record highs. If the price reaches the 97.33 level, sellers could step in there to position for a correction back toward the 96.10 support, while buyers will look for a break higher to add to bullish bets.
Today brings the US Consumer Confidence report and Job Openings data, followed by the ADP employment report and the PCE price index tomorrow, the ISM Manufacturing PMI and jobless claims on Thursday, and the NFP report on Friday. The focus, though, stays on US-Iran developments.
Source: Investinglive
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