The rupee steadied on Monday after two sessions of losses, with USD\/INR trading near 95.60. Focus turned to the RBI\u2019s decision to end its FX swap facility for FCNR deposits one month early, with accompanying data showing policy actions, including the swap window, drew almost $57bn. The market expects the pair to move between 95.00 and 95.50 this week, with positioning influenced by overseas demand ahead of the 31 August closure as well as foreign portfolio flows and routine hedging. Attention is also on minutes from the RBI\u2019s August meeting, where rates were left unchanged, while July headline CPI rose to 4.45% year-on-year from 4.38%.<\/p>\n
The dollar softened after weaker US data. Retail Sales fell 0.6% month-on-month in July after a 0.2% rise in June, and a market call for 0.1% growth, while the annual rate eased to 5.0% from 6.8%. CME FedWatch pricing puts the probability of a Fed rate rise next month at 33.1%, down from 44% last week, following softer CPI, PPI and Retail Sales. On charts, USD\/INR remains within an ascending channel and above the nine-period EMA at 95.4418 and the 50-period EMA at 95.3913; the 14-day RSI is 49.2, and the FXS Fed Sentiment Index is around 134.6.<\/p>\n
We suggest derivative traders prepare for increased volatility in the USD\/INR pair as the Reserve Bank of India winds down its FCNR deposit swap facility by August 31. This early exit of a facility that successfully attracted nearly $57 billion is highly likely to pressure the rupee, potentially driving the pair well above its current 95.60 level in the coming weeks. Historically, when the RBI managed the maturity of similar massive swap inflows, like the $34 billion program in 2016, forward premiums fluctuated sharply, offering lucrative opportunities for swap traders.<\/p>\n
We are closely watching the technical indicators, which show USD\/INR holding a constructive bias within an ascending channel above its 9-period EMA of 95.44. While the 14-day RSI of 49.2 suggests balanced momentum right now, any dip toward the projected 95.00\u201395.50 support range presents a strong buying opportunity. We recommend accumulating long USD\/INR call options on these short-term dips to capture the eventual upward breakout as the deposit facility closes.<\/p>\n
The soft US economic data, including a 0.6% month-over-month drop in July retail sales, has temporarily capped the dollar’s strength, but we expect this containment to be brief. Meanwhile, India\u2019s domestic inflation creeping up to 4.45% in July ensures the RBI will maintain its pause, which limits any dramatic appreciation for the rupee. Because of these dynamics, we advise against taking aggressive short-dollar positions.<\/p>\n
In the immediate term, we anticipate a rush of overseas clients securing FX deposits before the August 31 deadline, which will trigger choppy intraday price action. Traders should utilize range-bound strategies, such as short straddles or iron condors, to profit from the current 95.00 to 95.50 consolidation before pivoting to outright bullish USD positions. Keeping stop-losses tight just below the 50-period EMA of 95.39 will protect portfolios from any unexpected shifts when the RBI release its meeting minutes.<\/p>\n\n\n\n