Rates And Market Positioning
India’s one-year and two-year OIS rates have risen more than 45 basis points each since the conflict began on 28 February. The 10-year bond yield rose 11 basis points through Monday before giving back part of the move, and swaps price in nearly two RBI hikes over 12 months. WTI traded near $82.30 a barrel in Asian hours. The IEA plan would be larger than the 182 million barrels released in 2022, while risks around the Strait of Hormuz could limit oil declines. The US Dollar may firm on safe-haven demand amid conflict updates, alongside upcoming US CPI and Friday’s PCE data. USD/INR traded near 92.30, with resistance at 92.81, support at 92.06 and then 91.30; the 14-day RSI stayed in the mid-60s. We recall how this time in 2025, geopolitical tensions sent USD/INR surging towards its all-time high of 92.81 on fears of a wider conflict. Today, with the pair trading in a tighter range around 84.50, the market’s memory of that volatility is key. Last year’s foreign portfolio outflows, which reached over $4 billion in March 2025, have since reversed, with net inflows of $22 billion recorded for the year ending February 2026. The threatened supply disruption through the Strait of Hormuz in 2025 was a major driver, but the IEA’s record reserve release ultimately capped the rally in oil prices. This provided crucial support for the Rupee, preventing a more severe depreciation. With Brent crude now hovering around a more stable $86 per barrel, implied volatility on INR options is significantly lower than the highs seen during the first quarter of 2025.Lessons From Last Year
Looking back to 2025, swap markets were pricing in nearly two full rate hikes from the Reserve Bank of India. However, as inflation cooled faster than expected through late 2025, the RBI held rates steady, a stance it has maintained into this year. This divergence between market pricing and central bank action from last year should make us cautious about pricing in aggressive policy moves now. The safe-haven demand for the US Dollar during the 2025 conflict was a powerful, but temporary, force. Now, the focus has shifted back to interest rate differentials, with recent US non-farm payrolls data showing a robust 215,000 jobs added last month, keeping the Federal Reserve on a hawkish footing. This suggests that long-dollar positions via call options on USD/INR could be attractive, even without the geopolitical panic of last year. While the ascending channel from 2025 was broken later that year, the memory of the 92.81 peak serves as a psychological barrier. Currently, the pair is showing signs of range-bound activity, with implied volatility on one-month options falling to just 4.2%, well below the double-digit peaks of last year. Given this lower volatility, selling strangles with strikes set at 83.75 and 85.25 could be a viable strategy to collect premium in the coming weeks. Create your live VT Markets account and start trading now.
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