Indian Rupee slides as oil gains, US Treasury yields hit multi-year highs

Indian Rupee extends slide against the Dollar

The Indian Rupee (INR) extended its previous week's decline against the US Dollar (USD) in early trading on September 15, with USD/INR rising to near 95.85 in the opening session. The currency's underperformance was driven by record-high US Treasury Yields and elevated oil prices. The US Dollar Index (DXY), which gauges the Greenback's value against six major currencies, was up 0.15% near 99.62 during the session.

US 10-year yields push above 5% on Fed rate-hike expectations

US Treasury Yields extended their rally to a little over 5%, a level last seen in October 2023, on firm expectations that the Federal Reserve would raise interest rates in its policy announcement scheduled for September 16. Hawkish expectations were prompted by hotter-than-projected US Producer Price Index (PPI) data and sticky Consumer Price Index (CPI) reports for August. Investors were positioned for the monetary policy statement and Fed Chair Kevin Warsh's press conference for fresh cues on the rate outlook.

Crude oil climbs on Saudi pipeline shutdown, Strait of Hormuz delay

In the opening session on September 15, the MCX Crude Oil contract expiring on September 21 was up 1.8% to near Rs. 9,900, close to its multi-month high of Rs. 10,043 posted on Friday. Analysts at Deutsche Bank attributed the move to the precautionary shutdown of a major Saudi pipeline late on Friday following recent attacks, and to the postponement of a planned meeting between Iran and other Gulf states to discuss creating a temporary shipping corridor through the Strait of Hormuz. Those developments reinforced market concerns around regional supply security and key shipping routes.

ING sees a single Fed hike rather than a series

Economists at ING explained that they had "changed their view to a 25bp Federal Reserve rate hike in September in the wake of Chair Kevin Warsh's address at the Jackson Hole symposium," adding that "the data since then has justified that decision." While financial markets were pricing two and a half further rate hikes after the all-but-assured September 16 move, ING argued that "this time around we think that one and done might be the case," citing projections for jobs and inflation that suggested "no need for a series of hikes."

India's retail inflation accelerates but stays inside RBI band

India's Ministry of Statistics and Program Implementation reported on September 14 that retail CPI grew 4.82% year-on-year in August, faster than 4.8% estimates and the previous reading of 4.45%. The figure remained inside the Reserve Bank of India's tolerance band of 2% to 6%. Currencies from economies such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment, compounding the rupee's pressure alongside rising US yields.

Federal Reserve policy decision due September 16

The next verifiable milestone is the Federal Reserve's interest rate announcement on Wednesday, September 16, followed by Chair Kevin Warsh's press conference, which investors are watching for signals on whether a single hike is forthcoming or whether further moves are likely. Market participants are also monitoring any updates on the Saudi pipeline situation and the postponed Iran–Gulf states meeting on the Strait of Hormuz shipping corridor.