The rupee opened firmer against the dollar at the start of the week, with USD/INR falling towards 94.38 after India’s foreign-exchange reserves rose following strong non-resident participation in the Reserve Bank of India’s special foreign-deposits window. MUFG reported dollar inflows from the RBI’s FCNR(B) FX measures totalling above US$130bn as of 31 August, a backdrop that has helped reduce tail risks around abrupt currency weakness.
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.
USD/INR Technical Levels And Derivative Strategies
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.
Oil Price Impact And Volatility Hedge Approaches
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.
Looking ahead to Friday’s 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.
