Insights 
VT 
The Indian Rupee faced weakness against the US Dollar, trading around 88.90. This follows receding trade tensions between the US and China, as President Trump and Xi Jinping plan a meeting in late October.
Us Dollar Index Updates
The US Dollar Index, which measures the Greenback against six major currencies, remained strong near 99.25. Easing tensions were noted as China confirmed ongoing talks with the US, despite claiming Washington’s policies are discriminatory.
India’s retail inflation growth slowed to 1.54% in September, lower than expected and the slowest since June 2017. The Reserve Bank of India may cut the Repo Rate further, as inflation remains below its 2%-6% target band.
This year, the RBI reduced the Repo Rate by 100 basis points to 5.5%. Meanwhile, discussions over India’s oil purchases from Russia have impacted the Rupee.
Foreign investors have shown renewed interest in Indian stocks, with net buying of Rs. 3,289.30 crores from October 7-10. On the technical side, the Rupee remains near its all-time low against the Dollar, with mixed indicators pointing to potential price movements.
Opportunity in Rupee Weakness
The current weakness in the Indian Rupee presents a clear opportunity. With India’s retail inflation cooling to 1.54%, we are seeing a strong case for the Reserve Bank of India to cut interest rates again in December. This monetary policy divergence, with a potentially hawkish Fed, fundamentally supports a higher USD/INR exchange rate.
We believe derivative traders should consider positioning for further Rupee weakness. Given that the USD/INR pair is hovering near its all-time high of 89.12, buying out-of-the-money call options with a strike price around 90.00 for November or December expiry could be a prudent strategy. This approach limits downside risk while offering significant upside potential if the pair breaks through its current resistance.
Looking at historical patterns, we saw a similar situation in 2019 when a series of RBI rate cuts in a low-inflation environment led to a sustained depreciation of the Rupee. Current data reinforces this view, as foreign institutional investors, despite a brief buying spell, remain net sellers on the whole, having pulled over Rs. 15,000 crores from Indian markets in the last quarter. This underlying capital outflow adds further pressure on the Rupee.
The upcoming meeting between US and Chinese leaders in late October is a key event to watch. While positive news could temporarily ease pressure on emerging market currencies, any disappointment or renewed tension would likely strengthen the US Dollar, further propelling the USD/INR pair upwards. The recent uptick in one-month implied volatility for the pair to 6.2% suggests the market is already pricing in a significant move in the coming weeks.
For risk management, we should watch the 20-day Exponential Moving Average around 88.71 closely. A decisive break below this level could indicate that the bullish momentum is fading, signaling a potential exit point for long positions. However, as long as the pair holds above this support, the path of least resistance appears to be towards the 90.00 level.
