The Indian rupee weakened against the US dollar on Thursday after rising a day earlier, as a renewed climb in US Treasury yields buoyed USD/INR to around 96.10. The 10-year US yield was near 5.31%, a two-decade high, and the move in rates has reduced appetite for riskier assets, weighing on INR.
Bond yields have extended gains as Federal Reserve officials continued to flag inflation risks linked to potential energy supply shocks. The FXS Speechtracker score for Fed’s Kashkari was 7.1 versus a 6.2 historical average, while inflation was referenced near 3%; the FXS Fed Sentiment Index slipped 0.42 points to 143.28, still above the 100 neutral line. Attention now turns to September US Nonfarm Payrolls on Friday; CME FedWatch prices a 62.4% chance of no rate change this month, up from 29% a week earlier. ADP showed 90K private jobs added versus a 70K estimate and 36K in August, and ISM Manufacturing PMI for September is expected at 55.0 after 54.6. Technically, USD/INR held above the 20-day EMA at 95.74 (95.7263), with RSI at 62.76 and resistance near 97.00.
Impact Of Rising US Yields And Trading Strategies
We need to look at USD/INR approaching the 96.10 level, driven by the massive 5.31% yield on 10-year US Treasuries. Derivative traders should prepare for heightened volatility as we approach the key psychological barrier of 97.00 in the coming weeks. We recommend utilizing long call options or bull call spreads on USD/INR to capture this upward momentum while limiting downside risk.
To understand this move, we must look at how the Indian Rupee has historically behaved during periods of aggressive US monetary tightening. Historically, when US yields spiked during the 2013 taper tantrum and the 2022–2023 rate hike cycle, the rupee faced intense capital outflows, driving significant currency depreciation. With the 10-year US yield now reaching its highest level in two decades, we expect similar pressure to persist in the near term.
RBI Response, Key Data Catalysts, And Technical Levels
We should also closely watch the Reserve Bank of India’s (RBI) likely response to defend the currency. India’s foreign exchange reserves, which hit historic highs of over $680 billion in late 2024 and remained robust through 2025, provide the central bank with massive ammunition to intervene. Traders should expect sharp, sudden interventions that could temporarily crush implied volatility, making long premium options strategies risky if timed poorly.
Tomorrow’s US Nonfarm Payrolls (NFP) report is the next major catalyst, especially after the strong ADP private payrolls print of 90,000 jobs. If the official employment numbers exceed expectations, we will likely see the USD/INR break above 96.50 and target the all-time high of 97.00. For those trading short-term options, we suggest deploying calendar spreads to benefit from the volatility crush immediately following the NFP announcement.
Technically, the 20-day exponential moving average at 95.74 remains a reliable floor for the pair. As long as the USD/INR holds above this support, we favor buying the dips rather than trying to short this strong dollar trend. We advise setting tight stop-losses just below 95.70 on any long futures positions to protect capital against sudden RBI interventions.
