The Indian rupee opened firmer against the US dollar, with USD/INR sliding to near 94.60 after oil prices fell following confirmation that the US and Iran had finalised a Memorandum of Understanding. In early Indian trade, the MCX Crude Oil June 18 contract dropped 5.5% to around 7,630, its lowest in almost two weeks. Separately, Pakistan’s Prime Minister said the MoU will be signed on 19 June in Switzerland, while US and Iranian statements referenced a cessation of military operations and changes to access through the Strait of Hormuz.
Portfolio flows remained a drag, though the pace moderated: Foreign Institutional Investors have sold Rs 46,430.42 crore in June so far, averaging Rs 4,643 crore across 10 trading days, but the last two sessions averaged Rs 1,534.63 crore. On the data front, May WPI inflation printed at 9.68% year-on-year, above estimates of 9.1% and April’s 8.3%. In technical terms, USD/INR moved further below its 20-day EMA at 95.33; RSI sat near 42, with resistance flagged at 95.33 then 96.00, and support at 94.46 followed by 94.03.
Positioning for Further Rupee Strength
Given the sharp appreciation of the Rupee to 94.60, we should consider positioning for further strength in the coming weeks. We can look at buying USD/INR put options or shorting futures contracts, with initial targets set at the recent lows of 94.46 and then 94.03. The break below the 20-day moving average suggests this new downward momentum has strength.
This move is fundamentally justified by the collapse in oil prices, which is a significant economic positive for India. Since India imports over 85% of its crude oil, a sustained price drop drastically reduces the nation’s import bill. Historically, every $10 fall in the price of a barrel of oil improves India’s current account deficit by nearly 0.5%, attracting foreign investment.
The high WPI inflation reading for May is now less of a concern for us. The disinflationary shock from cheaper oil will likely outweigh this backward-looking data, anchoring future inflation expectations. This reduces the probability of any near-term interest rate hikes from the Reserve Bank of India, creating a stable policy environment.
Equities, Oil, and Structural Shifts
We should anticipate a strong rally in Indian equities, as lower energy costs will boost corporate profitability across many sectors. With FII selling already slowing down, this positive news could trigger a reversal into strong buying, similar to the inflows seen during the 2014-16 period of low oil prices. We see this as an opportunity to build long positions in Nifty and Sensex futures.
Regarding oil itself, the reopening of the Strait of Hormuz suggests a structural increase in global supply, not a temporary blip. Any rallies in crude prices in the near term should be seen as selling opportunities. The current MCX price near 7,630 is likely to face further pressure as Iranian supply officially re-enters the global market after the June 19 signing.
