The Indian Rupee started strong against the US Dollar but lost ground as trading entered its final hours. This shift was influenced by a rise in the US Dollar, ahead of discussions between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. The US Dollar Index is hovering around 99.00, and these events are coinciding with the ASEAN summit taking place in Malaysia. The Vice Premier’s visit is focused on addressing trade tensions between the US and China, particularly concerning export restrictions on rare earth minerals. Traders are also looking forward to the upcoming US Consumer Price Index (CPI) and preliminary S&P Global PMI data releases. Delayed CPI figures are expected to show a year-on-year inflation rate of 3.1%, up from 2.9%, with core inflation likely increasing as well.

US Inflation and Market Expectations

Inflation data in the US is crucial for setting the Federal Reserve’s interest rate expectations. Predictions for the Services PMI and Manufacturing PMI suggest modest growth, at 53.5 and 52.0, respectively. The US Dollar’s strength is seen against most currencies, with the Australian Dollar being the weakest. In India, the Rupee reacted to moderate PMI growth, with the Composite PMI reading at 59.9, down from 61.0 in September. India is optimistic about its trade relations with the US and plans for significant tariff reductions. However, concerns over foreign fund outflows have resurfaced, as Foreign Institutional Investors (FIIs) sold shares worth Rs. 1,165.94 crores. This selling is notable as FIIs had been regular buyers, but their recent selling has overshadowed those activities. In early trading on Friday, the USD/INR pair fell to 87.85, continuing a downward trend and staying below the 50-day EMA. The 14-day Relative Strength Index for the pair is below 40.00, showing strong bearish momentum. The key support level is at 87.07, while the 20-day EMA remains a barrier for potential gains. The Consumer Price Index (CPI), which measures inflation, plays a crucial role since the US Federal Reserve aims for price stability and full employment. Despite the challenges posed by the pandemic, inflationary pressures continue, largely due to supply chain issues. The Fed’s efforts to manage inflation are being closely examined as CPI remains high. Note: This content is informational and not investment advice.

Trade Relations and Economic Indicators

Currently, the USD/INR pair is affected by opposing forces. A strong US Dollar, with the DXY index nearing 99.00, coupled with ongoing US-China trade tensions, is pushing the pair higher. However, optimism about a new US-India trade agreement, which could reduce tariffs from 50% to around 15%, supports the Rupee. The upcoming release of the US Consumer Price Index (CPI) data for September is the most important event to watch. Economists expect an increase to 3.1%, but the Federal Reserve is also concerned about the labor market since the unemployment rate recently ticked up to 4.2%, from below 4% in 2023 and 2024. Even if inflation rises, the Fed might not react aggressively, adding uncertainty to the Dollar’s future. Domestically, the Indian economy is showing signs of slowing down, with the preliminary October Composite PMI dropping to 59.9. This slowdown, combined with renewed foreign fund outflows, is challenging for the Rupee. Data from the National Securities Depository Limited (NSDL) indicates FIIs have withdrawn a net total of $2.1 billion from Indian stocks this October. High-profile trade discussions in Malaysia about China’s export controls on rare earth minerals will keep the market anxious. Given that China dominates global rare earth mining and processing, any adverse results might further boost the US Dollar as a safe investment. With so much uncertainty, especially regarding the US CPI data, considering strategies that could benefit from possible volatility spikes may be wise. Setting up a long straddle or strangle option on the USD/INR could be a smart move to position for significant price shifts, no matter the direction. This strategy permits us to take advantage of the market’s response when inflation data is finally released. Create your live VT Markets account and start trading now.

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