US Dollar Ties to Oil Prices as USD/INR Pair Eyes Key Support Level

The US dollar's performance has been closely tied to oil prices this week, as expectations of a de-escalation in the conflict between the US and Iran initially sparked a decline in crude prices. However, after US President Trump's comments at the UN General Assembly reiterated that the US would make a deal with Iran after the November elections, optimism for a near-term resolution faded, causing oil prices to rebound.

This renewed rise in oil prices has contributed to a deterioration in risk sentiment, with the greenback strengthening across the board. The US Flash PMIs released on Wednesday came in much stronger than expected, triggering another hawkish repricing and sending Treasury yields to new highs.

The current focus is on Iran's proposal to reopen the Strait of Hormuz within seven days if the US meets its terms. A breakthrough in these negotiations would likely be negative for the US dollar in the short-term, as aggressive rate hike bets may be pared back. Conversely, a prolonged stalemate or re-escalation will continue to support the greenback into new highs.