The rupee opened firmer against the dollar at the start of the week, with USD\/INR falling towards 94.38 after India\u2019s foreign-exchange reserves rose following strong non-resident participation in the Reserve Bank of India\u2019s special foreign-deposits window. MUFG reported dollar inflows from the RBI\u2019s FCNR(B) FX measures totalling above US$130bn as of 31 August, a backdrop that has helped reduce tail risks around abrupt currency weakness.<\/p>\n\n
Oil provided a counterweight as tensions around the Strait of Hormuz kept crude prices elevated. The MCX September 21 crude contract rose 1.75% to about Rs. 8,730, close to a more than three-month high of Rs. 8,791. Attention then turns to the US August CPI release on Friday, after August nonfarm payrolls came in at 162K versus a 56K estimate, while July was revised to 21K from -23K; CME FedWatch put the probability of a rate rise next week at 58%. On charts, USD\/INR was at 94.49, below the 20-day EMA of 95.15, with support at the June low of 94.15 and resistance again near 95.15; the 14-day RSI slipping below 40 suggested downside momentum, though potentially stretched.<\/p>\n\n
We suggest derivative traders focus on the immediate downside support for USD\/INR at 94.15, as the pair remains technically bearish below its 20-day moving average of 95.15. With the Relative Strength Index slipping below 40, we recommend using short-term bear put spreads to capitalize on this downward momentum. However, we should avoid aggressive shorting since the currency is quickly approaching oversold territory.<\/p>\n\n
We must also account for the sharp rise in oil prices, with MCX Crude climbing near its three-month high of Rs 8,730 due to escalating US-Iran tensions. Historically, India imports over 80% of its crude oil, meaning any prolonged energy supply shock will inevitably pressure the rupee. To hedge this, we advise building long USD\/INR call options to protect against a sudden trend reversal.<\/p>\n\n
Looking ahead to Friday\u2019s US CPI release and next week’s Fed meeting, currency volatility is bound to spike. With markets pricing in a 58% chance of a rate hike after August’s strong 162K jobs report, we favor buying straddles or strangles. This allows us to profit from a breakout in either direction, whether the US dollar surges on hot inflation or plunges on a dovish surprise.<\/p>\n\n\n\n