India’s foreign exchange reserves rose to $688.95 billion as of December 8, up from $687.26 billion. This increase of $1.69 billion indicates a strengthening financial position for the country.

Forex Reserve Stability

The boost in India’s forex reserves to $688.95 billion gives the Reserve Bank of India (RBI) more tools to support the rupee. This significant reserve means a sudden drop in the rupee’s value is less likely in the coming weeks, setting a limit for the USD/INR currency pair. This stability suggests that implied volatility in the USD/INR options market should go down. Lower volatility means the market believes the RBI can and will step in to prevent drastic price changes. Traders can expect the USD/INR pair to stay within a clearer range as we move into early 2026. Supporting this trend, recent news from early December 2025 showed that US inflation has slowed, which has weakened the dollar worldwide. Additionally, India’s service exports soared by 8% year-on-year in the third quarter of 2025, boosting foreign currency inflows. This mix of a weaker dollar and strong domestic contributions helps keep the rupee stable or stronger.

Trading Strategies

A similar situation occurred in 2023 when the RBI actively used its reserves to stabilize the rupee against a strong dollar. Data from that time shows that high reserves allowed the RBI to maintain the USD/INR pair within a narrow range for long periods. With current reserves significantly exceeding the average of around $600 billion in 2023, the capacity for intervention is even greater. As a result, selling out-of-the-money USD/INR call options for January and February 2026 seems like a solid strategy. This tactic profits from the anticipated lack of upward movement and the decrease in the option’s time value. The aim is to collect the premium, believing the RBI will limit any major rupee weakness. Another strategy could involve shorting USD/INR futures contracts, expecting a gradual rise in the rupee’s value. For a safer trade, a put spread could be considered, where you buy a USD/INR put option and sell another one at a lower strike price. This profits from a small decline in the currency pair while keeping the initial costs low. Create your live VT Markets account and start trading now.

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