The Indian Rupee extended losses against the US Dollar on Wednesday, with USD\/INR edging above 95.00 after a sharp correction a day earlier. Rising energy costs added pressure: the MCX Crude Oil contract expiring on 21 September was up more than 2.5% at just above Rs 8,950, the highest since 22 May. Oil climbed as US-Iran clashes raised concerns about supply disruption. Iran\u2019s IRGC fired ballistic missiles at the Al Azraq air base in Jordan, following US CENTCOM strikes on Iranian tankers in the Gulf of Oman, according to Al Jazeera.<\/p>\n
Shipping data also pointed to strain. Kpler figures cited by Reuters showed seven commodity vessels transited the Strait of Hormuz on 7 September versus eight the previous day, far below the pre-war average of 130-140. The rupee\u2019s drop has fuelled talk of RBI activity in spot and NDF markets; Reuters said the central bank was present on Tuesday, though the currency still weakened. Attention now turns to August US CPI on Friday and its implications for rate expectations; TD Securities forecasts core PCE of 0.18% m\/m, with market-based at 0.13%. Technically, USD\/INR traded at 95.07, near the 20-day EMA at 95.1338; upside levels include 95.50, while support sits at the June low of 94.15.<\/p>\n
We recommend that derivative traders focus on long positions in MCX crude oil contracts as geopolitical tensions choke the Strait of Hormuz. With shipping traffic through this vital corridor plunging from a historical average of 140 ships to just seven, supply fears will keep pushing energy prices higher. Since this strait handles about 20% of global petroleum liquids, any further US-Iran escalations will trigger massive upward price swings.<\/p>\n
In the currency markets, we should closely watch the USD\/INR pair as it hovers around 95.07, just under the 20-day exponential moving average of 95.13. If the daily price closes above 95.13, we should buy short-term call options targeting the 95.50 mark. However, we must place tight stop-losses near the 94.15 support level to protect against sudden reversals.<\/p>\n
We must also prepare for sudden volatility spikes caused by the Reserve Bank of India intervening to defend the rupee. Historically, the RBI has utilized its massive foreign exchange reserves, which hit historic highs of nearly $690 billion, to aggressively dump dollars in the spot market. Because of this constant threat of central bank intervention, trading USD\/INR using capped-risk option spreads is much safer than going long on naked futures.<\/p>\n
The upcoming US inflation report this Friday will be the next major market driver, and we should use market-neutral strategies like straddles to capture the inevitable price swings. If the core monthly PCE inflation indeed prints at a subdued 0.13% as forecasted, the Fed is highly likely to pause rate hikes, which could temporarily halt the dollar’s rally. We should position our derivative portfolios to exploit these rapid changes in implied volatility before the weekend.<\/p>\n\n\n\n