Insights 
VT 
The Indian Rupee (INR) rebounded after hitting a two-month low of 86.20 against the US Dollar (USD) and rose to almost 86.00. The US Dollar Index (DXY) dropped to near 98.00 from a daily high of 98.36.
The ongoing conflict between Israel and Iran is expected to sustain interest in safe-haven assets like the US Dollar. Despite tensions, the lack of resolution efforts has led to increased demand for such assets.
Impact On Oil Prices
Iran’s potential closure of the Strait of Hormuz, a major oil route, could result in higher oil prices, which would be unfavourable for India due to its reliance on oil imports. The US Dollar showed variable performance against other major currencies, particularly declining against the Australian Dollar.
The Federal Reserve is anticipated to maintain interest rates on Wednesday, with market focus on future rate outlooks amid shifting economic policies and rising oil prices. India’s inflation data and foreign investor outflows are influencing the Indian Rupee’s weakness, despite CPI growth slowing to its lowest in six years.
In equities, Foreign Institutional Investors continue to sell Indian stocks, impacting market dynamics. Meanwhile, USD/INR retreated after reaching a two-month high, with its 20-day EMA as a key support level.
With the rupee retracing from that recent trough near 86.20, and now hovering just above 86.00, we are likely watching a pause rather than a change in direction. The currency’s slump was not entirely unexpected, considering a confluence of domestic and external triggers. Yet the quick rebound suggests some level of technical resistance around that figure, perhaps encouraged by short-term profit-taking or mild retracement in Dollar strength globally.
The drop in the US Dollar Index (DXY) down to the 98.00 handle hints at some ebbing demand for the greenback, at least temporarily. Still, with no diplomatic progress between Israel and Iran, the broader risk climate remains tense. Safe-haven demand—often cyclical and, in this case, largely driven by geopolitical risk—tends to gather momentum in such settings, particularly when energy corridors like the Strait of Hormuz face plausible threats.
Currency Market Volatility
Any material disruption to oil supplies via that strait would propel oil prices higher, worsening trade balances for oil-importing nations like India. That correlation remains linear, and not much about it has changed. If Brent or WTI flirts with new highs amid supply shocks, it spells added pressure on the rupee, particularly when already burdened by foreign investor withdrawal.
Federal Reserve policy, while expected to stay on hold for now, continues to weigh heavily on cross-border capital flows. The US central bank’s eventual rate path will alter yield spreads and influence Dollar demand. With oil volatility back on the radar, the bond market becomes even more reactive. The coming statement from policymakers isn’t just about the policy rate—it’s the forward guidance that will matter for volatility, and spread trades already reflect that.
Meanwhile, India’s own macroeconomic signals, although mixed, are pushing the rupee into defensive mode. Consumer inflation has eased to a six-year floor, but that hasn’t translated into rupee strength. The reason seems rooted in how foreign capital is behaving: outflows persist, continuing to undermine equity and currency performance alike.
On the chart, USD/INR pulling back after that two-month high is worth noting, though it appears anchored by the 20-day EMA for the time being. We see it functioning as both a psychological and technical support level. If the pair settles below that region cleanly, short-term traders might re-evaluate bullish bets. But unless inflows resume meaningfully or energy prices stabilise, pressure on the rupee likely continues.
Volatility has also returned to G-10 currency markets, making hedging strategies more relevant than they’ve been in months. The Dollar’s weakness against the Australian Dollar, for instance, is telling. It reflects selective unwinding of defensive positions, perhaps on improved data or commodity price shifts. From a positioning standpoint, risk-on versus risk-off doesn’t have a singular direction—it’s reacting in pockets, and derivatives must reflect that.
In the short term, we are watching options pricing to adjust as implied volatility edges up. Hedgers adjusting knock-in and knock-out levels should revisit any stale assumptions about oil’s usual ceiling or Dollar fatigue. Any new geopolitical shock or a hawkish shift from Powell’s camp could reignite demand for safety—derivatives would move quickly to price that in.
That means spreads, especially calendar and cross-currency, could see more volume. For now, monitor oil futures and Treasury yields closely; they’re aligned with directionality far more clearly than equities, which continue facing foreign selling.
