The Indian Rupee is steady at about 88.90 against the US Dollar, holding near its historic high of 89.10. This stability comes amid trade tensions between the US and India. Foreign Institutional Investors (FIIs) are pulling back from Indian markets because of US tariffs on Indian goods and India’s oil purchases from Russia. In fact, FIIs sold a large amount of shares, totalling ₹1,29,870.96 crore between July and September, and ₹3,502.34 crore in October. Despite these sales, the Indian stock market has recently risen, with Nifty50 increasing by 2.45%.

US Dollar Steady Amid Global Changes

The US Dollar is also stable, supported by political unrest in Europe and a leadership change in Japan, which have affected the Euro and Yen. The US Dollar Index is around 98.20, with the Federal Reserve expected to cut rates in upcoming meetings. The USD/INR is about 89.00, and technical indicators suggest a bullish trend. If it dips below previous lows, it could fall; however, if it rises past 89.12, it may reach 90.00, reflecting ongoing fiscal and political uncertainties. Currently, the USD/INR is holding steady near its high due to ongoing US-India trade tensions. The significant outflow of foreign capital from Indian stocks is the main reason the Rupee is weakening. Traders must closely monitor the heavy selling by FIIs. The nearly ₹1.3 lakh crore sold by FIIs last quarter is worth noting, especially when compared to 2022, when aggressive global tightening led to a record outflow of over ₹2.7 lakh crore from Indian equities, causing the Rupee to drop. This current capital flight mirrors that trend, with global risk factors impacting the Rupee’s stability.

Near the Psychological 90.00 Mark

As the USD/INR approaches the psychological 90.00 mark, we expect the Reserve Bank of India to step in to reduce volatility. India’s foreign exchange reserves are strong, reported at over $642 billion, providing the central bank with the ability to sell dollars and limit any drastic increases. While the trend is bullish, a sharp rise past 90.00 is unlikely in the short term. For derivative traders, this suggests that strategies with defined upsides may be wise. A bull call spread could be an effective way to profit from further increases while managing risk, such as buying an 89.25 call and selling a 90.00 call. This strategy leverages upward momentum while accounting for resistance at 90.00 due to potential central bank actions. On the US Dollar front, the ongoing government shutdown is creating some uncertainty. However, during the 35-day shutdown from 2018-2019, the market’s response was relatively stable. Traders might see this as short-term political maneuvering rather than a serious economic threat. Nonetheless, the cancellation of important data like the Non-Farm Payrolls report leaves the market with less clarity. Traders expect two additional 25 basis point rate cuts from the Federal Reserve this year, which may limit the dollar’s strength. However, we should remain cautious, as the latest US Core CPI data showed inflation still at 3.4%. This could complicate the Fed’s decision to ease policy. Fed Chair Powell’s speech this Thursday will be critical, shaping the market’s outlook. With conflicting pressures—a weak Rupee sentiment and a potentially capped US Dollar—the implied volatility in USD/INR options is likely to rise. Traders might consider strategies like long straddles to benefit from a significant price movement in either direction, especially if the current trading range around 88.90 breaks. This strategy allows for profit from a resolution of this tension without predicting the specific direction. Create your live VT Markets account and start trading now.

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