Indian Rupee rebounds as rally in US yields and oil prices hits a pause

The Indian Rupee (INR) opens sharply higher against the US Dollar (USD) on Friday, with the USD/INR pair correcting to near 95.75 from an over seven-week high of 96.10 posted the previous day. The Indian currency capitalizes on a pause in rally in both oil prices and United States (US) Treasury Yields.

As of writing, the MCX Crude Oil contract expiring on September 21 trades at around Rs. 9,688. The oil price has corrected from its multi-month high of Rs. 10,238 posted earlier this week.

A correction in oil prices brings relief for currencies from economies, such as India, which rely heavily on oil prices to meet their energy needs.

Oil eases as Saudi supply signals improve Middle East flow outlook

Analysts at Deutsche Bank note that some improvement in the outlook for oil flows out of the Middle East has resulted in a pullback move in oil prices. They highlight that this “included news that Saudi Arabia was increasing tanker loadings in the Gulf and ramping up sales of crude from just outside the Strait of Hormuz,” as the Kingdom looks to ship more barrels through the strait following the closure of its East-West oil pipeline.

Deutsche Bank adds that the supply picture was further supported when “Bloomberg report[ed] that Saudi Arabia is aiming to restore about half of the East-West pipeline’s capacity within days and return it to full capability ‘in about six weeks.”

This has provided some relief from tight energy supply concerns, which were escalated following drone attacks by Yemen-linked Houthis on pipeline facilities near Riyadh and Medina.

US Treasury Yields correct on oil relief

Yields on US government-backed securities have cooled down a little after rallying in the past few weeks, following relief from a slight correction in oil prices. As of writing, 10-year US Treasury Yields trade close to ongoing week’s low near 4.94% after hitting a 19-year high of 5.04% on Tuesday.

Lower US bond yields result in an improvement in appeal of risk-sensitive assets, such as the Indian Rupee.

Also, market experts believe the interest rate hike move by the Federal Reserve (Fed) on Wednesday, which resulted in an improvement in central bank’s credibility, has also weighed on US Treasury Yields.

According to TD Securities, a combination of "already-hawkish Fed pricing, increased inflation-fighting credibility, and worries about higher rates impacting growth, should help keep 10-year yields contained."

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 95.7755, keeping a constructive bullish tone as spot holds above the 20-period exponential moving average (EMA) at 95.4582. The pair is extending its recovery from the mid-94.00s, and the positioning above this short-term EMA suggests underlying demand remains in place, with pullbacks likely to attract buying interest while momentum stays supportive.

On the downside, immediate support is seen at the 20-period EMA near 95.46, which underpins the short-term uptrend and marks the first level where buyers could re-emerge on any corrective move. Looking up, the September 17 high at 96.10 is the immediate support; a decisive break above the same could open the door for revisiting the all-time high near 97.00.