The Indian Rupee rose against the US Dollar on Tuesday, with USD/INR easing to near 93.00. Markets were cautious ahead of Donald Trump’s deadline for Iran to reopen the Strait of Hormuz by Tuesday, April 7 at 08:00 PM ET (05:30 AM IST on Wednesday).
Trump said the US would bomb Iranian power plants and bridges if the strait is not reopened. Iran indicated it would respond, including threats against regional US infrastructure and allies.
Oil Risk And Rupee Pressure
Traders feared that any escalation could lift oil prices, which can weigh on the Rupee because India meets 88%-89% of domestic energy needs through oil imports. Foreign Institutional Investors sold Indian equities worth Rs. 26,429.45 crore across the first three trading days of April.
Attention in India turns to the RBI policy decision on Wednesday, where the Repo Rate is expected to stay at 5.25%. Later on Wednesday, the FOMC minutes are due after the Fed kept rates at 3.50%-3.75%.
Technically, USD/INR traded near the 20-day EMA at 92.95, with the 14-day RSI moving into the 40.00-60.00 range. Support sits at 92.35 and 91.35, while resistance is at 93.66 and the record high of 95.22.
Looking back at the market on April 7, 2025, we saw the USD/INR pair holding its breath around the 93.00 level. The primary focus was the impending deadline given to Iran by the US, a situation threatening to disrupt the Strait of Hormuz. With roughly one-fifth of the world’s oil supply passing through that strait, any closure would have immediate and severe consequences for global energy markets.
We should have considered the historical precedent for oil price shocks during geopolitical events. For example, in early 2022, Brent crude prices surged over 30% in just a few weeks following the conflict in Ukraine, jumping from around $90 to over $120 per barrel. Given India imports nearly 89% of its oil, a similar spike would put extreme downward pressure on the Rupee.
Capital Flows And Risk Off Moves
The flight of capital was already evident, as foreign investors pulled over Rs. 26,429 crore from Indian equities in the first three days of April 2025 alone. This trend would almost certainly accelerate into a torrent if actual military action began. In such a risk-off environment, emerging market currencies like the INR are typically the first to be sold off.
For traders, this situation signaled a clear need to hedge or take directional positions against Rupee weakness. Buying out-of-the-money USD/INR call options would have been a prudent strategy to protect against a sudden spike. This would provide significant upside exposure with a relatively small, defined capital outlay.
Speculatively, the bias was firmly towards a long USD/INR position. The existing bullish trend was still intact, and a break above the immediate resistance at 93.66 would open the path towards the all-time high near 95.22. The fundamental picture of a potential oil crisis strongly supported this technical view.
While the upcoming RBI and FOMC meetings were on the calendar, their influence was likely to be muted by the geopolitical storm. Central banks can try to manage inflation expectations, but they cannot easily counteract a major supply-side shock to energy prices. Their statements were expected to be hawkish, but their actions would likely be insufficient to defend the Rupee against a global panic.
The high level of uncertainty meant that implied volatility on USD/INR options was likely to increase significantly. This presented an opportunity for traders to buy volatility through strategies like long straddles or strangles. Such a position would profit from a large price move in either direction, which seemed almost guaranteed if the deadline was breached.
