The Indian rupee opened firmer as USD/INR extended a four-session decline to around 95.20, its lowest in almost two weeks. Support came from expectations of further Reserve Bank of India action in the foreign-exchange market, alongside an early drop in crude on improved US-Iran deal prospects, although oil later rebounded after Iran said the Strait of Hormuz is a matter for coastal states. The RBI’s reserve stockpile was cited at nearly $700bn, while market positioning was also shaped by foreign institutional investors remaining net sellers for a fourth session, with outflows totalling Rs 10,386.52 crore.
Oil volatility remained a key driver: WTI recovered to about $91.60 after falling more than 6% to roughly $89.50. The US Dollar Index was down 0.3% at about 99.00, and CME FedWatch pricing showed the probability of at least one Fed rate rise this year at nearly 57%, compared with 67% on Friday. Technically, USD/INR was hovering near its 20-day EMA at 95.3719, with RSI around 53; a break below 95.00 could expose 94.00, while a move above 96.37 could reopen 97.00.
RBI Action and Market Strategy
The Reserve Bank of India is clearly signaling its intent to curb excessive rupee weakness, and we see this as a significant cap on the USD/INR pair. With forex reserves recently reported by the central bank at $698 billion, there is more than enough firepower to intervene against speculative moves. This makes selling upside optionality an attractive strategy for the near term, as a sustained move above 97.00 seems highly unlikely.
Oil Prices, FII Outflows, and Trading Range
We must remain cautious due to the volatile oil situation, as the initial optimism about a US-Iran deal is fading. India imports over 85% of its crude oil needs, and with prices recovering to over $91 per barrel, this puts direct pressure on the current account deficit. This renewed uncertainty in energy markets suggests that any significant appreciation of the rupee below the 95.00 level will be difficult to sustain.
Foreign investor outflows present another significant headwind, with over Rs. 10,300 crore pulled from equities in just four days. According to recent depository data, this month’s FII selling is on track to be the highest since October 2025, reflecting concern over corporate earnings. As long as this selling pressure continues, it will act as a natural floor for the USD/INR pair, limiting the rupee’s gains.
Given these conflicting signals, we believe the best approach is to position for a range-bound market with elevated volatility. Implied volatility on one-month USD/INR options has ticked up to 5.8%, so selling strangles with strikes around 94.50 and 96.50 could be a viable strategy to capitalize on time decay. We are primarily looking to sell call spreads above 96.50, as the RBI’s stance makes a sharp rally unlikely.
The broader weakness in the US Dollar Index, now trading around 99.00, provides a temporary tailwind for the rupee. However, a failure to break decisively below the 95.00 mark on the USD/INR would signal that underlying weaknesses are taking over. We will be closely watching this level as a critical pivot point to adjust our positions in the coming days.
