The Indian Rupee (INR) rebounded on Thursday, ending a three-day losing streak against the US Dollar (USD) as the USD/INR pair corrected to near 95.62. This recovery was driven by a sharp decline in long-dated US bond yields, following the US Treasury Department's announcement to at least double the maximum size of its liquidity-support buyback operations for longer-dated nominal securities. The current maximum size of $2 billion per operation will be increased to at least $4 billion per operation, aiming to curb the recent sharp increase in borrowing costs [1].
The US Dollar Index (DXY) hovered near a fresh seven-week low of 98.77 posted on Wednesday, reflecting the Greenback's vulnerability. The 30-year US Treasury yields fell almost 2% from Tuesday’s close to around 5.18%, while 10-year yields remained near 4.64%. Lower US bond yields have improved the appeal of riskier currencies, such as the Indian Rupee [1].
Minutes from the Federal Open Market Committee (FOMC) July meeting revealed that many board members supported further interest rate hikes if inflation remains elevated, though a few preferred to avoid an immediate hike. Despite this, the probability of the Federal Reserve holding rates steady in September stands at 67%, up slightly from 64% on Tuesday, according to the CME FedWatch tool [1].
Jefferies analysts noted that the FOMC minutes may now be outdated, as more recent US economic data for July showed a reduction in the overall labor force by 23,000 and a downward revision to June’s Nonfarm Payrolls. Additionally, both headline and core Consumer Price Index (CPI) grew at a moderate pace [1].
Technically, USD/INR trades at 95.6350, just above the 20-period exponential moving average (EMA) at 95.55, indicating a mildly constructive near-term bias. The Relative Strength Index (RSI) at 51.72 suggests modest buying interest, with immediate support at the 20-period EMA around 95.55 [1].
CONCLUSION
The Indian Rupee's rebound was supported by a weaker US Dollar and lower US bond yields following the Treasury's decision to double bond buybacks. While the Fed remains cautious on rate hikes, recent economic data points to a moderating US economy. Market sentiment for USD/INR appears mildly positive for the Rupee in the near term.