Key Drivers Of Recent Rupee Weakness
Foreign selling in Indian equities added pressure on the rupee. In the first two trading days of April, FIIs sold Rs. 18,262.28 crore, and they were net sellers on all trading days in March. Markets are watching the RBI’s monetary policy decision on Wednesday, with rates expected to stay unchanged. Attention is also on the US ISM Services PMI for March at 14:00 GMT, forecast at 55.0 versus 56.1 in February. USD/INR support is seen near 92.35, with a close below that level pointing towards 91.35. Resistance stands around the 20-day EMA near 93.00, then 93.66, with the all-time high at 95.22. With the USD/INR pair testing 92.85, we see a clear case for a weakening rupee in the near term. The combination of soaring oil prices and significant foreign fund outflows creates strong headwinds. For the coming weeks, we should consider buying out-of-the-money USD/INR call options to position for a potential move higher with defined risk.Strategy Considerations For The Week Ahead
The threat of WTI oil staying above $100 a barrel is a major concern for the rupee, as India imports over 85% of its crude oil needs. This situation mirrors what we saw during geopolitical flare-ups in 2022, when oil prices surged and directly pressured India’s current account deficit and currency. A sustained period of high oil prices will almost certainly push the USD/INR pair towards its previous highs. The heavy selling by Foreign Institutional Investors, with over Rs. 18,000 crore pulled out in just two days, is continuing a trend we observed in the final quarter of 2024. This consistent outflow strengthens the US Dollar and puts sustained pressure on the rupee. As long as Middle East tensions persist, this flight to safety will likely continue, making it difficult for the INR to find a solid footing. Wednesday’s RBI policy announcement is this week’s key event risk, creating potential for a spike in volatility. While the market expects rates to be held, any hawkish commentary to combat inflation could temporarily strengthen the rupee, while a dovish stance would accelerate its fall. A long straddle option strategy could be a prudent way to trade the announcement itself, profiting from a large move in either direction. From a technical standpoint, we should use the 93.00 level as a key trigger point for new long positions. A convincing break above this 20-day EMA would signal that the bullish momentum for USD/INR is resuming. This could be our signal to add to long futures positions, with an initial target of the April 2 high at 93.66. Create your live VT Markets account and start trading now.
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