Rupee edges higher; options market gauge turns most bearish in over a month

The Indian rupee was modestly stronger on Wednesday, supported by easing bets of imminent rate hikes by the U.S. Federal Reserve and elevated dollar selling at the Reserve Bank of India's daily reference rate.

The rupee was at 96.16 per U.S. dollar, up marginally from its closing level at 96.20 in the ‌previous session.

Meanwhile, ⁠traders remained ⁠cautious as oil prices held north of $85 per barrel after the U.S. reimposed a naval blockade of all Iranian ports and threatened to hit power plants and bridges next week unless Tehran resumes negotiations.


Elevated oil prices threaten the economic balance for India as it imports a large majority of its energy needs. The anxiety has reflect in the dollar-rupee options market, ⁠with a ‌key gauge drifting to its highest level in over a month.

The 1-month 25 delta risk reversal rose to 0.4, signalling options ⁠wagering on a weaker rupee and trading higher than those betting on a rupee rally.

On the day, though, heightened appetite to sell dollars at the central bank's daily reference rate supported the currency alongside modest weakness in the U.S. dollar after inflation data came in weaker than anticipated on Tuesday.

The Reserve Bank of India's reference rate is the daily benchmark used to settle contracts and often ‌attracts concentrated dollar buying or selling.

Bond yields fell after the surprisingly soft data dampened market expectations for a near-term U.S. rate hike, with yields on two-year ⁠U.S. Treasuries off 9 basis points from a 16-month high.

"For FX markets, the key takeaway is that softer inflation has reduced upside risks to U.S. yields, but has not fundamentally altered the high U.S. real yield backdrop," MUFG said in a note, adding that rising tensions in the Middle East are likely reinforcing safe-haven demand.

Elsewhere, regional equities rose, led by a near-8% climb in South Korean stocks while India's benchmark Nifty 50 was up 0.6%.