The Indian Rupee has weakened against the US Dollar, trading at about 88.90. This change comes after easing trade tensions between the US and China, as President Trump and Xi Jinping plan to meet in late October.

US Dollar Index Updates

The US Dollar Index, which compares the Dollar to six major currencies, remains strong at around 99.25. China confirmed it is still in talks with the US, even while calling Washington’s policies unfair. In September, India’s retail inflation growth slowed to 1.54%, which was lower than expected and the slowest increase since June 2017. The Reserve Bank of India (RBI) may lower the Repo Rate further since inflation is below its target range of 2%-6%. This year, the RBI has already cut the Repo Rate by 100 basis points to 5.5%. Discussions about India’s oil purchases from Russia are also affecting the Rupee. Foreign investors are showing renewed interest in Indian stocks, with net purchases of Rs. 3,289.30 crores between October 7-10. Technically, the Rupee is close to its all-time low against the Dollar, with mixed signals suggesting possible price shifts.

Opportunity in Rupee Weakness

The current weakness of the Indian Rupee presents an opportunity. With retail inflation dropping to 1.54%, there’s a strong case for the RBI to cut interest rates again in December. This difference in monetary policy, while the Fed remains cautious, supports a higher USD/INR exchange rate. We suggest that derivative traders consider positioning for further Rupee weakness. Given that the USD/INR pair is near its all-time high of 89.12, buying out-of-the-money call options with a strike price of around 90.00 for November or December could be a smart move. This strategy minimizes risk while offering potential for significant gains if the pair breaks through resistance. Historically, we saw a similar situation in 2019 when several RBI rate cuts in a low-inflation period led to a continued drop in the Rupee. Current data supports this view, as foreign institutional investors, despite a brief buying period, are still net sellers, withdrawing over Rs. 15,000 crores from Indian markets last quarter. This ongoing capital outflow puts more pressure on the Rupee. The upcoming meeting between US and Chinese leaders in late October is a critical event. Positive news could provide temporary relief for emerging market currencies, but any negative developments could boost the US Dollar and drive the USD/INR pair higher. The recent increase in one-month implied volatility for the pair to 6.2% indicates the market is anticipating a significant move soon. For risk management, we should keep an eye on the 20-day Exponential Moving Average around 88.71. A significant drop below this level could signal a fading bullish trend, suggesting an exit point for long positions. However, as long as the pair stays above this support, the path of least resistance seems to point toward the 90.00 level. Create your live VT Markets account and start trading now.

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