The rupee strengthened on Thursday, extending its rally with USD/INR near 94.28, as FX reserves were bolstered by inflows via the Reserve Bank of India’s Foreign Currency Non-Resident (FCNR)(B) deposit window. Reuters cited the RBI as saying India drew $136.38bn through special foreign-currency mobilisation schemes, after the central bank had been active in spot and Non-Deliverable Forward (NDF) markets in recent months to smooth one-sided volatility. A softer US dollar also weighed on the pair.
The Dollar Index (DXY) slipped to about 99.28 after ADP reported 38K private-sector jobs added in August, below a 47K estimate and a prior 46K, ahead of Friday’s Nonfarm Payrolls (NFP) release that feeds into Federal Reserve (Fed) policy expectations. India’s macro picture also shifted, with 2Q26 real GDP growth at 7.8%, or 80bp above the RBI’s forecast, alongside real GVA at 8.2% as services rose 10.0%, manufacturing 9.2% and gross fixed capital formation 11.9%, while private consumption increased 7.1%; FY27 growth guidance is 6.7%. On charts, USD/INR traded around 94.48, below the 20-day EMA at 95.32, with the 14-day RSI at 27.96 and support near 94.16.
Derivative Positioning for USD/INR Downside
We recommend that derivative traders position for continued downside in the USD/INR pair over the coming weeks, targeting the key support level near 94.16. With India’s foreign exchange reserves hovering at historic highs—bolstered by the central bank’s massive $136.38 billion inflow from special deposit schemes—policy makers have immense firepower to prevent any sudden rupee depreciation. Therefore, selling USD/INR futures or buying near-the-money put options remains our preferred strategy.
However, we must note that the daily Relative Strength Index (RSI) has slipped to an oversold level of 27.96, which warns of a potential short-term technical bounce. To protect against a brief corrective rally, traders should place tight stop-loss orders just above the 20-day exponential moving average at 95.32. Utilizing limited-risk strategies, such as bear put spreads, will help us capture the downward momentum while capping potential losses if a temporary reversal occurs.
Macro Catalysts and Trading Strategies
The immediate catalyst for volatility will be the upcoming US Nonfarm Payrolls (NFP) data, especially after private payrolls grew by a meager 38,000 in August. Historically, when the US labor market shows such pronounced weakness, the US Dollar Index (DXY) tends to break below key psychological levels, much like its current slip toward 99.28. We suggest buying short-term straddles ahead of the NFP release to profit from the expected sharp volatility spike, regardless of the direction.
On the domestic front, India’s outstanding Q2 GDP growth of 7.8% indicates the economy is running hot and comfortably absorbing tighter financial conditions. This robust growth reduces the likelihood of any early interest rate cuts by the Reserve Bank of India, supporting a stronger rupee yield advantage. Derivative traders can exploit this fundamental strength by entering long-INR calendar spreads, capturing premium decay while staying aligned with India’s superior macroeconomic outlook.
