USD/INR Price News: Indian rupee renews record low at 78.40 on sour sentiment, hawkish Fed bets

• USD/INR refreshes all-time high before retreating to 78.20, prints four-day uptrend.
• Fears of aggressive Fed action join China-linked news to propel USD.
• India bond yields track US counterparts to jump to the highest levels since 2019.

USD/INR jumps to the lifetime high of 78.40 during a four-day uptrend heading into Monday’s European session, consolidating daily gains around 78.20 by the press time. The Indian rupee (INR) pair traces the broad US dollar strength, as well as pessimism in the bond market to print the record top.

That said, the US Dollar Index (DXY) dribbles around a one-month high surrounding 104.50 as the US inflation data bolstered expectations of faster/heavier rate hikes by the Fed. The headline US Consumer Price Index (CPI) rose to 8.6% YoY versus 8.3% expected while the Core CPI jumped 6.0% YoY compared to the expected drop to 5.9% from 6.2% a month earlier. It’s worth noting that the record low of the University of Michigan Consumer Sentiment Index for June, to 50.2 versus revised down 58.1, couldn’t stop the US dollar bulls.

At home, India’s 10-year Treasury bond yields jump to the highest in three years while flashing 7.60% coupon rate at the latest. On a broader front, the US 10-year Treasury yields rise 2.7 basis points (bps) as buyers attack the four-year low marked in May, around 3.20%.

The jump in yields justifies the market’s hawkish bets on the US Federal Reserve. It’s worth observing that the CME FedWatch tool shows 26.8% chance of a 75 bp Federal Reserve rate hike at the June 15 meeting.

Other than what’s already mentioned above, covid fears in China and the Sino-American tussles, recently over Taiwan, also propel the USD/INR prices. Beijing witnessed a jump in the covid numbers during the weekend and recalled some of the virus-led activity restrictions together with the mass testing. Shanghai is on the same line. Recently, Beijing’s local government spokesman Xu Heijian mentioned that a covid outbreak linked to a bar in Beijing is ferocious. Further, China’s Defense Minister Wei Fenghe crossed wires during the weekend stating that China's relationship with the US is at a crossroads. The policymaker also added that they will fight to the end if anyone attempts to secede Taiwan from China. “those who seek Taiwan independence will come to no good end,” said China’s Wei.

Moving on, USD/INR traders need to pay close attention to the risk catalysts, as well as the Fed moves, for fresh impulse.

Technical analysis

Overbought RSI conditions join an upward sloping resistance line from early March to challenge USD/INR bulls around 78.40, a break of which may not hesitate to challenge the 80.00 psychological magnet.

Meanwhile, pullback moves remain elusive until the quote remains beyond 77.85, comprising the upper line of the previous trading range, established in mid-May.