The Indian rupee opened marginally firmer against the US dollar, with USD/INR easing towards 95.70 as WTI fell 1.8% to about $90.80, supporting currencies of oil-importing economies. Geopolitical risk remained in focus after Iran said the US had breached a ceasefire following strikes in southern Iran described by US Central Command as self-defence, while the Islamic Revolutionary Guard Corps threatened retaliation. Talks on ending the conflict and reopening the Strait of Hormuz continued via mediators; the route carries almost 20% of global energy supply.
Foreign Institutional Investors stayed cautious on Indian equities, selling Rs 2,407.87 crore on Tuesday after buying Rs 821.75 crore on Monday. The dollar traded in a narrow band near 99.00 ahead of April’s US Personal Consumption Expenditure Price Index due on Thursday; core PCE is expected at 3.3% year on year versus 3.2% in March, with a 0.3% monthly rise. In technical trade, USD/INR held above the 20-day EMA at 95.4387, with RSI near 56; support sits near 95.44, then 95.00, while resistance is seen at 96.37 and around 97.00.
Rupee Strength And Geopolitical Tensions
We are seeing the Indian Rupee strengthen due to falling WTI crude prices, which are now trading near $90 a barrel. This move is being tempered by significant FII outflows, with the NSDL reporting a net outflow of over ₹20,000 crore for the month of May so far. This creates a tense balance for the USD/INR pair, currently holding around the 95.70 mark.
The primary catalyst in the coming weeks is the US-Iran negotiation concerning the Strait of Hormuz. We believe the market is underpricing the binary risk of this event, with implied volatility on one-month USD/INR options at just 6.5%, below the 8% seen during similar tensions in late 2024. Buying options, such as straddles, could be a prudent strategy to capitalize on a significant price swing regardless of the deal’s outcome.
US Data, Fed Policy, And Option Strategies
Attention must also be paid to the upcoming US Core PCE data, which is the Federal Reserve’s preferred inflation gauge. The market consensus is for a 3.3% year-over-year reading, and a higher-than-expected number would likely reinforce the Fed’s hawkish stance. This would strengthen the US Dollar globally and could push the USD/INR pair towards the 96.37 resistance level.
From a technical standpoint, the pair remains above its 20-day EMA, suggesting underlying bullish momentum for the US Dollar. Given the upside potential towards the 97.00 all-time high, we see value in purchasing out-of-the-money call options. For instance, weekly options with a 96.50 strike price offer a low-cost way to position for a potential breakout following the PCE data release or negative news from Iran.
