The Indian Rupee strengthened slightly after hitting about 86.90 against the US Dollar during Monday’s European trading session. This rise followed strong preliminary HSBC PMI data for June, which showed the Composite PMI increased from 59.3 in May to 61.0, thanks to healthy activity in both manufacturing and services. Oil prices fell back, which helped the Indian Rupee recover from its earlier decline. However, surging crude prices from US actions in the Middle East could keep pressure on the Rupee. In the Indian stock market, the Nifty50 index dropped 1% but later regained some of its losses.

US Strikes on Iranian Sites

Over the weekend, the US conducted strikes on three Iranian nuclear sites. Iran plans to close the Strait of Hormuz, which could affect global oil supply. As a result, the Indian Rupee, currently around 86.95, could fall to Rs. 88 against the US Dollar if tensions continue, leading to a larger current account deficit for India. In India, the Reserve Bank of India cut its Repo Rate by 50 basis points to 5.5%. Meanwhile, in the US, discussions about interest rate cuts created uncertainty. The USD/INR pair looks strong, supported by the 20-day EMA, with the April 11 high acting as a crucial resistance point. What we’ve observed so far this week is a balancing act between positive domestic factors and ongoing external challenges. The momentum in India’s private sector highlights solid internal demand, particularly with the June composite PMI moving further into expansion territory. Strong performance in both manufacturing and services supports this view. Normally, such data would boost local assets, including the currency. However, the Rupee’s earlier bounce wasn’t stable, closely linked to energy market trends and risk-off sentiment. Energy prices continue to complicate the direction of the domestic currency. The initial drop in oil prices helped the Rupee recover from its earlier weakness, but this relief seems precarious. With potential retaliation from Tehran and US military actions targeting Iranian sites, geopolitical risks blend with commodity expectations. Markets are already assessing potential disruptions to the Strait of Hormuz, which could limit global oil supply just as demand is expected to rise in the summer. For India, a net oil importer, this raises immediate concerns about trade balances and the impact on inflation. A widening current account deficit would be a significant concern.

Central Bank Policies

The actions of central banks add another layer of complexity. The RBI’s unexpected 50 basis points cut in the Repo Rate signals that policymakers may be preparing for external pressures. This typically weakens the Rupee, as it improves liquidity but can decrease short-term currency value due to narrowed rate differences with other economies. Internationally, the Fed faces its own timing challenges. Markets react to not only recent data but also conflicting statements from Fed officials on the pace of rate cuts. This has caused volatility in USD pairs, although the Dollar Index remains relatively stable. This supports the ongoing upward trend of the USD/INR pair, which benefits from the reliability of the 20-day exponential moving average while eyeing a retest of the resistance seen on April 11. In this context, options and futures traders should note the upward bias in the pair, especially if crude prices persist in rising and any shifts in US rate policy occur. Hedging strategies may be beneficial for managing moderate Rupee depreciation, particularly if energy-linked asset volatility increases in the coming weeks. Looking ahead, the possibility of the pair reaching Rs. 88 is not just speculation—it has technical and fundamental backing, especially if prolonged conflicts disrupt oil supply or push Brent crude prices higher. Moreover, should risk-off sentiment prevail, foreign outflows from domestic equities could also pressure the local currency. While the Nifty50 showed resilience by recovering half of its earlier losses, fluctuations in foreign institutional positioning will likely remain volatile amid the current macro environment. Over the next fortnight, it’s crucial to stay aware of commodities-related news and any significant naval activity in the Gulf. Rapid adjustments to options premiums and directional trades may be needed following such developments. Maintaining flexibility in positions near established support and resistance levels will help manage risks effectively. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now