The Indian rupee is set to revisit record lows as US-Iran deadlock extends, tensions rise
FUNDAMENTAL OVERVIEW
USD:
The US dollar weakened across the board last week after the US Treasury announced that it will at least double the size of its liquidity-support buyback operations for longer-dated Treasury securities, increasing the maximum purchase from $2 billion to at least $4 billion per operation.
US Treasury Secretary Bessent then said that part of the operation is sending a message to the market that yields do not reflect underlying fundamentals and added that the buyback could be more than $4 billion depending on conditions.
The Treasury intervention in the market had a QE-like effect by lowering long-term yields and easing financial conditions, although it’s not technically QE. That’s why we saw the greenback selling off across the board following the announcement.
In the long-term, long-term yields are driven by monetary policy as they are just the average expected path of short-term interest rates over the life of the bond plus a term premium, but they are more sensitive to changes in economic outlook.
The focus will now shift to the Federal Reserve and Warsh's speech at the Jackson Hole Symposium next week. I was expecting it to be a non-event given Warsh's preference of not giving forward guidance and the fact that the soft NFP and CPI reports eased Fed tightening concerns. After the Treasury buyback announcement, though, the speech could actually be a market-moving event.
If Warsh doesn't lean against the easing in financial conditions, the current "debasement" trades like long precious metals, bitcoin and short US dollar will likely extend further. On the other hand, if he pushes back saying things like "recent easing in financial conditions, if sustained, could complicate the process of returning inflation to our target" or "if recent easing threatens progress toward price stability, we will not hesitate to respond appropriately" and so on, the market may interpret it as a signal for a potentially hawkish September FOMC and trigger pullbacks in the "debasement" trades.
INR:
On the INR side, the currency continues to lose ground against the dollar as the deadlock between the US and Iran shows no signs of improving anytime soon. Moreover, US Treasury Secretary Bessent is expected to unveil the ‘toughest’ sanctions in history against Iran today.
This situation will likely keep oil prices elevated. Higher oil prices tend to weaken the Indian rupee because India imports most of its oil, increasing demand for US dollars, widening the trade deficit, and putting pressure on the country's external balances.
In the short-term, the INR will continue to be driven by oil prices, so the path of least resistance will remain to the downside until the US and Iran find an agreement and the Strait of Hormuz is reopened.
In the big picture, the Indian Rupee remains on a bearish structural trend against the US dollar, so dip-buyers will continue to look for opportunities around strong technical levels to keep pushing the USD/INR pair into new highs.
USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDINRis approaching the key 96.10 resistance zone. That’s where we can expect the sellers to step in with a defined risk above the resistance to position for a drop back into the 95.10 support. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new record highs.
USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have an upward trendline defining the bullish momentum into the resistance. The buyers will likely continue to lean on the trendline with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break to pile in for a drop into the support zone next.
USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will continue to have a better risk to reward setup around the trendline, while the sellers will likely wait for the price to come into the resistance or break the trendline to position for new lows.
UPCOMING CATALYSTS
Today we have US Treasury Secretary Bessent unveiling the sanctions against Iran. Tomorrow, we get the US Consumer Confidence report. On Wednesday, we have the US PCE price index. On Thursday, we get the US Jobless Claims figures. On Friday, we conclude the week with Fed Chair Warsh’s speech at the Jackson Hole Symposium.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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