Indian rupee rebounds to record high at 78.40 on sour sentiment and hawkish Fed bets

  • USD/INR refreshes its all-time high before falling back to 78.20, prints a four-day uptrend.
  • Fears of aggressive Fed action join China-related news to propel the USD.
  • Indian bond yields follow their US counterparts to reach the highest levels since 2019.

USD/INR jumps to an all-time high of 78.40 during a four-day uptrend heading into Monday’s European session, consolidating daily gains around 78.20 as we go. put in press. The Indian Rupee (INR) pair retraces the general strength of the US Dollar, as well as pessimism in the bond market to print the record high.

That said, the US Dollar Index (DXY) is dripping around a 1-month high around 104.50 as US inflation data bolstered expectations for faster/heavier rate hikes by the Fed. The US consumer price index (CPI) rose to 8.6% yoy from 8.3% expected, while core CPI jumped 6.0% yoy from the drop expected to 5.9% against 6.2% a month earlier. It should be noted that the record low in the University of Michigan consumer confidence index for June, at 50.2 against a downward revision of 58.1, could not stop the rises in the dollar. American.

In the country, yields on India’s 10-year Treasury bonds hit their highest level in three years while posting a coupon rate of 7.60% at the latest. On a broader front, 10-year US Treasury yields rise 2.7 basis points (bps) as buyers attack the four-year low marked in May, around 3.20%.

The jump in yields justifies the market’s hawkish bets on the US Federal Reserve. It should be noted that the CME tool FedWatch shows a 26.8% chance of a Federal Reserve rate hike of 75 basis points at the June 15 meeting.

In addition to what has already been mentioned above, covid fears in China and recent Sino-US wrangling over Taiwan are also propelling USD/INR prices. Beijing witnessed a spike in covid numbers over the weekend and recalled some of the virus-related activity restrictions as well as mass testing. Shanghai is on the same line. Recently, Beijing local government spokesman Xu Heijian said a covid outbreak linked to a Beijing bar was fierce. Moreover, Chinese Defense Minister Wei Fenghe crossed wires over the weekend when he said China’s relationship with the United States was at a crossroads. The politician also added that he would fight to the end if anyone tried to separate Taiwan from China. “Those who seek independence for Taiwan will achieve nothing,” Chinese Wei said.

Next, USD/INR traders should pay close attention to risk catalysts, as well as Fed moves, for further momentum.

Technical analysis

Overbought RSI conditions are joining an upward sloping resistance line since early March to challenge USD/INR bulls around 78.40, a break of which may not hesitate to challenge the psychological magnet at 80.00.

Meanwhile, pullback moves remain elusive until the quote stays above 77.85, comprising the upper line of the previous trading range set in mid-May.