The Indian Rupee (INR) is holding steady against the US Dollar (USD) as we wait to see how India will respond to President Donald Trump’s statements about stopping Russian oil purchases. The relationship between the US and India is tense because of tariffs imposed by Washington on imports from India related to Russian oil trade. Minutes from the Reserve Bank of India (RBI) suggest that further interest rate cuts may happen due to inflation concerns. Meanwhile, the US Dollar is losing value, partly because of expectations that the Federal Reserve (Fed) will cut interest rates due to worries in the labor market.

Impact of US Government Shutdown

The US government is now in its third week of shutdown, which is costing around $15 billion each week. This situation could escalate trade tensions between the US and China, with Trump urging China to stop buying oil from Russia. The USD/INR pair is showing weakness, remaining below the 20-day Exponential Moving Average (EMA) of 88.58. The Indian Rupee is facing pressure from trade deficits and changes in oil prices, which can affect the demand for USD. Additionally, inflation and seasonal demand for the US Dollar influence the Rupee’s value. The growth of the Indian economy is attracting foreign investments, which also affects the Rupee as the demand for Dollars changes its exchange rate. Currently, the market is in a holding pattern, waiting for a clear statement from New Delhi regarding Russian oil. This uncertainty has kept the USD/INR pair around the 87.70 mark. Any sudden policy change from India could significantly impact the Rupee.

Implications of New Delhi’s Decision

The stakes are high because India became one of Russia’s largest oil customers after 2022. In fiscal year 2024, India imported nearly 1.6 million barrels of Russian crude each day. If India stops these purchases, it would need to buy more expensive oil from other sources, likely increasing demand for US Dollars and weakening the Rupee. With this important event coming up, we can expect implied volatility for USD/INR options to rise shortly. Traders might want to consider strategies that benefit from big price movements, regardless of the direction. A long straddle or strangle with near-term options could be a good way to prepare for a potential breakout after India makes its official announcement. If New Delhi confirms a halt to Russian oil imports, we can expect the USD/INR to jump sharply. This move would likely push the pair above the 20-day EMA at 88.58 and towards the previous range near 89.00. Buying call options or call spreads would be an effective way to capitalize on this potential scenario. On the other hand, if India chooses to ignore the US pressure, the Rupee might experience a temporary rally, with the pair moving towards the August low of 87.07. However, this uptrend could be short-lived due to the RBI’s dovish outlook, especially after September’s inflation numbers dropped to 4.8%. The market is already expecting possible rate cuts from the RBI, which may limit any significant appreciation of the Rupee. We also need to acknowledge the ongoing weakness of the US Dollar, which is under pressure from the government shutdown and strong expectations for a Fed rate cut. The market is anticipating a 94.6% chance of a 50-basis-point cut, which is impacting the dollar index. This scenario makes shorting USD/INR more complicated, as the overall dollar weakness could offset any Rupee-specific issues. Create your live VT Markets account and start trading now.

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