On Tuesday (September 8) during the European session, the US dollar rose slightly against the Indian rupee, currently trading around 94.70, with the continued rise in oil prices dragging down the rupee, outweighing the impact of the weakening dollar.

Rising oil prices put pressure on the rupee, with Asian currencies facing energy headwinds.

The continued rise in crude oil prices has significantly weighed on the rupee, outweighing the support from a weakening dollar. OCBC Bank points out that rising oil prices, coupled with higher US Treasury yields, create an unfavorable backdrop for Asian currencies (excluding Japan). The region is heavily reliant on energy imports, and the resulting trade shocks from rising energy costs will significantly limit currency appreciation. Societe Generale predicts that Brent crude oil may break through $102 per barrel and move towards the $108-110 range. If oil prices continue to rise, the rupee may face further downward pressure. Meanwhile, shipping traffic in the Strait of Hormuz remains fragile, and geopolitical risk premiums persist, further exacerbating cost concerns for energy-importing countries. Overall, energy prices and geopolitical factors are becoming significant headwinds suppressing Asian currencies.

US CPI data will be key; the probability of an interest rate hike is 58.4%.

The market is highly focused on the US CPI data to be released this Friday. TD Securities expects the data to be "moderate enough to keep the Federal Reserve on hold," but also emphasizes that if the Fed adjusts interest rates this year, "the probability of a rate hike is greater than a rate cut." CME data shows that the probability of a rate hike in September has risen to 58.4%. If the CPI reading is moderate, the dollar may come under pressure and fall, thus providing some support for the rupee; conversely, if the CPI is overheated, the expectation of a rate hike will be further consolidated, and a stronger dollar may put additional pressure on the rupee. Investors need to closely monitor oil price trends, the actual US CPI results, and related policy signals from the Reserve Bank of India. If Brent crude oil breaks through $102 per barrel, the rupee may be pushed towards the 95.00-95.50 range. With multiple factors intertwined, volatility before and after the data release may increase significantly.

Summarize

The US dollar is currently slightly higher against the Indian rupee, pressured by rising oil prices, and Asian currencies are facing energy headwinds. Societe Generale expects Brent crude to potentially break through $102/barrel. US CPI data will be key, with a 58.4% probability of an interest rate hike. The rupee is likely to trade in the 94.50-95.00 range in the short term, with attention focused on oil price movements, US CPI data, and policy signals from the Reserve Bank of India. If oil prices continue to rise or CPI remains high, the rupee may face further pressure; conversely, if oil prices fall or CPI remains moderate, the rupee is expected to find support. The vulnerability of the Hormuz flow continues to create a geopolitical risk premium. (USD/INR daily chart, source: FX678) At 15:53 Beijing time, the USD/INR exchange rate was 94.73/74.