Indian Rupee rebounds after three-day losing streak against US Dollar

The Indian Rupee regained some strength after a three-day decline against the US Dollar. The USD/INR pair rebounded to near 95.62, following a significant drop in long-term US bond yields, triggered by the Treasury Department's announcement to double its bond-buying operations. The US Dollar Index (DXY), which measures the Greenback’s performance against six major currencies, approached a seven-week low of 98.77 on Wednesday.

The yield on 30-year US Treasury bonds fell almost 2% from Tuesday's closing price to near 5.18%. Similarly, 10-year US Treasury yields remained near 4.64% after Wednesday's declines. Lower US bond yields boost the attractiveness of riskier currencies like the Indian Rupee. On Wednesday, the US Treasury Department revealed that it would at least double the maximum size of its liquidity-support buyback operations for longer-dated nominal securities, raising the current $2 billion limit to at least $4 billion per operation.

This move aims to curb rising borrowing costs. The Federal Open Market Committee's (FOMC) minutes from the July meeting, released on Wednesday, indicated that some members believed a pause in interest rate hikes might be preferable to avoid further increases in the future. However, the odds of the US central bank holding interest rates steady in the September meeting remain unchanged, at 67%, according to the CME FedWatch tool.

Analysts from Jefferies noted that economic data released since the FOMC meeting provided an outdated picture of the economic situation. The US economy showed a 23,000-person reduction in the labor force and revised lower June Nonfarm Payrolls data. June’s Consumer Price Index (CPI) growth was moderate. In the daily chart, USD/INR is trading at 95.6350, slightly above the 20-period exponential moving average (EMA) at 95.55, indicating a slight bullish bias.

Immediate support for the pair is at the 20-period EMA around 95.55, with further cushioning at the August 12 low of 95.29. A decisive break above the August 19 high of 95.76 could extend the advance toward 96.00. The Indian Rupee is highly sensitive to external factors, including crude oil prices, the value of the US Dollar, and foreign investment levels.

The Reserve Bank of India (RBI) intervenes in foreign exchange markets to stabilize the exchange rate, and adjusts interest rates to maintain an inflation rate of 4%. Higher interest rates strengthen the Rupee, while lower inflation and economic growth also positively impact its value.