The rupee extended a week-long rise against the US dollar on Friday, pushing USD\/INR to a fresh over two-week low near 95.30 after an overnight drop in the greenback raised doubts about the Federal Reserve\u2019s resolve on inflation. The dollar index, DXY, was last up 0.27% at about 100.23, even though it fell almost 0.9% on Thursday to around 99.86. Markets parsed Fed Chair Kevin Warsh\u2019s refusal to offer forward guidance, while reiterating that policy would adjust as needed to address inflation. <\/p>\n
Higher oil prices remained a restraint on the rupee given risks to energy supply from US\u2013Iran hostilities and tensions around the Strait of Hormuz and Bab el-Mandeb. The next domestic catalyst is the Reserve Bank of India\u2019s 5 August decision, with the benchmark repurchase rate seen held at 5.25%; June CPI rose 4.4% year on year, within the RBI\u2019s 2\u20136% band. Technically, USD\/INR stayed below the 20-day EMA at 95.81, with RSI near 44; resistance sits around 95.81 and 96.00, while support is seen at the 7 July low of 94.80.<\/p>\n
We are seeing the Indian Rupee gain strong ground, pushing the USD\/INR pair down to around 95.30 as doubts grow over the US Federal Reserve’s commitment to fighting inflation. Given this bearish momentum, we recommend derivative traders target short positions on USD\/INR futures, looking for a further slide toward the key support level of 94.80. To manage risk effectively, stop-losses should be placed just above the 20-day Exponential Moving Average, which is currently acting as resistance near 95.81.<\/p>\n
With the Reserve Bank of India widely expected to keep its benchmark repo rate steady at 5.25% on August 5, we anticipate near-term stability for the Rupee. Since India’s retail inflation has hovered around a manageable 4.4%\u2014well within the central bank’s 2% to 6% target range\u2014implied volatility in near-term options is likely to decline after the announcement. Traders can exploit this environment by setting up bear put spreads to capture the downward trend without overpaying for option premiums.<\/p>\n
However, we must remain highly cautious of the energy market, where escalating geopolitical tensions in the Middle East continue to support high oil prices. Historically, India relies on imports to meet over 85% of its crude oil needs, making the Rupee highly sensitive to rising energy costs. To hedge against a sudden reversal, we advise traders to hold out-of-the-money USD\/INR call options as a cheap protective measure against sudden oil supply shocks.<\/p>\n\n\n\n