The Indian Rupee started the week weaker against the US Dollar, with USD/INR rising to around 90.70. The move followed Foreign Institutional Investors (FIIs) selling shares worth Rs. 7,395.41 crore on Friday, after IT stocks fell on concerns about AI disruption. The Rupee also came under pressure from expectations of higher oil prices tied to US-Iran tensions. India’s WPI inflation for January rose to 1.81% YoY, above estimates of 1.25% and December’s 0.83%.

Dollar Outlook And Rate Expectations

The US Dollar was steady, with the Dollar Index (DXY) trading near 96.95. Markets still expect the Fed to keep rates in the 3.50%-3.75% range, based on the CME FedWatch tool. US headline inflation eased to 2.4% YoY from 2.7% in December. Monthly CPI increased 0.2%, below estimates and the previous 0.3%. In India on Monday, USD/INR held near 90.70 and struggled to push above the 20-day EMA around 90.73. The 14-day RSI stayed in the 40.00-60.00 range. Key levels to watch are 90.00 on the downside and 91.25 if the pair breaks higher. The Rupee remains under notable pressure as foreign investors reduce exposure to IT stocks due to AI-related disruption fears. This looks similar to 2023, when FIIs pulled out more than $3.4 billion in a single month amid global uncertainty. For now, USD/INR is trading just below the key resistance near 90.73.

Trading Strategies And Key Levels

Rising oil prices linked to US-Iran tensions are adding to the weakness. This is a major issue for India, which relies heavily on oil imports. In the past, similar geopolitical flare-ups near the Strait of Hormuz pushed Brent crude up by more than 8% within weeks, and that pattern could repeat. Higher oil prices tend to make holding Rupees less appealing. At home, the surprise jump in wholesale inflation to 1.81% may make the Reserve Bank of India more cautious, which can weigh on sentiment. At the same time, the US Dollar remains supported because the Federal Reserve is reluctant to cut rates. This is similar to early 2024, when stubborn services inflation kept policy tight. Together, higher local inflation and a firm Dollar help keep USD/INR supported. Given this setup, traders may consider buying USD/INR call options with a strike around 91.00, looking for a break above the 90.73 technical level. This offers upside exposure if the Rupee weakens, while limiting risk to the premium paid. It may also be sensible to hedge Rupee receivables using forward contracts near the current 90.70 level. However, the RSI suggests momentum is not strong, so the pair may stay range-bound for now. If 90.73 holds as resistance, selling out-of-the-money call options with a strike near 91.25 could be a way to collect premium. This works best if the Rupee avoids a sharp decline and USD/INR stays below that level. Traders should also watch for signs that FII selling is slowing, since that could trigger a reversal. If USD/INR fails to break higher and instead falls, a move toward the psychological support at 90.00 becomes more likely. In that case, buying put options may be a way to position for a stronger Rupee. Create your live VT Markets account and start trading now.

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