The Indian Rupee Hits Fresh Low, Opening at 96.86 Against the US Dollar

Indian Rupee Hits Record Low as Global Bond Yields Rise and Oil Prices Remain High

The Indian rupee plummeted to a new record low on May 20, settling at 96.86 against the dollar after opening 33 paise lower. This decline marks the seventh consecutive session of record lows for the currency, which has fallen more than 7 percent since the start of the year. The rupee is the worst-performing emerging Asian currency, with a decline of 0.6 percent this week alone.

The rupee's woes can be attributed to a surge in global bond yields, particularly in the United States. The 10-year US treasury yield has jumped over 20 basis points in four days, while the 30-year yield has hit its highest since 2007. This increase in yields is a signal that investors are pricing in a more stubborn inflation outlook in the US, with the 10-year yield moving above 4.5 percent and the 30-year yield crossing 5.1 percent.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The rupee's decline is also being fueled by consistently higher Brent crude prices, which have stayed near $111 a barrel. The ongoing geopolitical tensions between the US and Iran are not helping to alleviate the pressure on the rupee. United States Vice President JD Vance has stated that while there has been some progress in talks between the two countries, a definitive deal remains elusive.

According to CR Forex Advisors' managing director Amit Pabari, the Rs 97 zone may offer some near-term resistance and trigger temporary defense in USDINR. However, the ongoing geopolitical tensions and the lack of meaningful signs of de-escalation suggest that this level is eventually expected to give way.

The rupee has fallen 5.7 percent since the beginning of the Iran war, and the current surge in US treasury yields is amplifying the pressure on the currency. The CME's Fedwatch tool is now showing a 47 percent probability of an interest rate hike by December, up from 14 percent last week. This repricing of the rupee, largely adjusted to the prospect of persistently high oil prices, now faces a significant shift in US rates.