Rupee's RBI-driven bounce seen as fragile with oil prices climbing again

USD:

The US dollar has faced some downward pressure lately as Treasury yields fell sharply, despite inflation data last week coming in above forecasts.

This reaction may appear counterintuitive, since higher inflation typically pushes interest rates up, but the market could be shifting its focus toward growth concerns.

If the economy weakens, the Fed might have to maintain a hawkish stance because of ongoing inflation, potentially hurting growth further and eventually leading to rate cuts.

Looking at longer maturities, there was a slightly more dovish adjustment in interest rate expectations after the hot inflation reading and no changes on the geopolitical front.

Should the market's attention turn to growth worries, Friday's US Flash PMIs will be a crucial test. Strong data could ease those fears and lift the dollar. Weak figures would likely amplify growth anxieties, putting more pressure on long-term Treasury yields and the US currency.

INR:

On the Indian rupee front, the currency jumped sharply last week after the RBI intervened to slow its decline, using a mix of direct FX intervention and regulatory steps. The central bank was reported to be selling dollars to prop up the rupee, while also creating a special facility to provide dollars directly to state-run oil companies, diverting a large portion of dollar demand away from the spot market.

It also tightened rules on FX derivatives, making speculative dollar positions more costly and limiting additional pressure on the currency. Those actions forced traders who had bet on further rupee weakness to reconsider their positions, sparking a strong rebound. But the intervention does not tackle the fundamental stress coming from high oil prices and foreign capital leaving the country.

The primary factor remains crude oil. India relies heavily on imported oil, so rising prices mean local importers need to buy more dollars for energy payments, boosting demand for the greenback and worsening the nation's trade and current-account balance. The current disconnect with oil is thus unlikely to persist for long, and the rupee could face renewed pressure in the coming days.

Looking at the broader picture, the Indian rupee is in a long-term bearish trend against the US dollar, so dip buyers will keep seeking entry points around major technical levels to push the USD/INR pair to fresh highs.

USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, USDINR fell all the way down to the key 95.10 support zone. Buyers stepped in near that support, with a clear risk below it, betting on a rally toward 96.10 resistance. Sellers, meanwhile, want to see the price break lower to extend the decline to the 94.00 level next.

USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4-hour chart, the most recent swing high sits around the 95.53 mark, which could serve as minor resistance. Buyers will look for a break above that level to boost bullish bets toward 96.10 resistance, while sellers will keep selling near it, aiming for a drop below 95.10 support.

USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1-hour chart, there is little to add, as traders will watch for either a break above 95.53 or below 95.10 support.

UPCOMING CATALYSTS

Thursday brings the latest US Jobless Claims data. On Friday, the week ends with US Flash PMIs.