Insights 
VT 
The Indian Rupee (INR) remains stable against the US Dollar (USD) as India’s response to President Donald Trump’s claims regarding halting Russian oil purchases is awaited. Relations between the US and India are strained due to Washington’s tariffs on imports from New Delhi linked to Russian oil trade.
The Reserve Bank of India (RBI) minutes indicate that further interest rate cuts are possible due to inflation risks. The US Dollar continues its decline, influenced by expectations of Federal Reserve (Fed) interest rate cuts amidst labour market concerns.
Impact Of US Government Shutdown
The US government extends into its third week of shutdown, potentially costing $15 billion weekly. Trade tensions between the US and China may rise, with Trump urging China to cease oil purchases from Russia.
The USD/INR pair remains under pressure, staying below the 20-day Exponential Moving Average (EMA) of 88.58. The Indian Rupee faces challenges from its trade deficit and fluctuations in oil prices, often impacting demand for USD.
Inflation and seasonal US Dollar demand also affect the Rupee’s value. The Indian economy’s growth attracts foreign investments, impacting the Rupee with shifting Dollar demands influencing its exchange rate.
We are currently in a holding pattern as the market awaits clarity from New Delhi on the Russian oil issue. This uncertainty has pinned the USD/INR pair near the 87.70 level, creating a tense balance. The potential for a sudden policy shift from India makes this a critical juncture for the Rupee.
Implications Of New Delhi’s Decision
The stakes are incredibly high, as we know India became one of Russia’s largest customers after 2022. Looking back at fiscal year 2024 data, India’s imports of Russian crude averaged nearly 1.6 million barrels per day. Halting this supply would force India to buy more expensive oil elsewhere, likely increasing demand for US Dollars and weakening the Rupee.
With such a binary event pending, implied volatility on USD/INR options is likely to rise in the coming days. Traders should consider strategies that benefit from a large price swing, regardless of the direction. A long straddle or strangle using near-term options could be an effective way to position for a breakout once India’s official statement is released.
If New Delhi confirms it will halt Russian oil purchases, we should expect a sharp move upwards in USD/INR. This would likely push the pair back above the 20-day EMA around 88.58 and towards the previous consolidation range near 89.00. Buying call options or call spreads would be the direct play on this scenario.
Conversely, if India defies the US, the Rupee could see a relief rally, pushing the pair towards the August low of 87.07. However, this strength could be short-lived given the Reserve Bank of India’s dovish stance, especially with September’s inflation figures cooling to 4.8%. The market is already pricing in potential rate cuts from the RBI, which will likely cap any significant Rupee appreciation.
We must also remember the weakness of the US Dollar itself, which is under pressure from the ongoing government shutdown and high expectations for a Fed rate cut. The market has priced in a 94.6% probability of a 50-basis-point cut, which is weighing on the dollar index. This makes shorting USD/INR a more complicated trade, as broad dollar weakness could partially offset any Rupee-specific negativity.
