Boxed-in Indian rupee revives appetite for selling short-term volatility
The rupee was quiet on Tuesday, inching up about 0.1% to 85.90 against the U.S. dollar, after trading in a narrow 12-paisa intraday range on Monday.
Over the past two weeks, the rupee's weekly trading band has narrowed to 50–60 paisa, pushing 10-day realised volatility down to 4.3% from over 6.5% late last month. During this stretch, the currency has established a well-defined range, finding support near 86.00 and resistance around 85.20–85.30.
This is prompting interest from corporates and interbank to sell short-dated volatility. Two bankers said a prominent Indian conglomerate has been inquiring about selling 1-week to 1-month volatility - a strategy that pays off if the rupee continues to trade within its current range.
"Volatility selling is making a comeback in a small way, and it makes sense considering the recent price action. The rupee's range feels pretty well locked in for now, and its reaction to headlines has been fairly limited," said the head of FX and rates at a mid-sized private sector bank.
He added the rupee was finding support around the 86 level without visible intervention from the Reserve Bank of India, suggesting the market positioning by itself is keeping the dollar/rupee boxed in.
Bankers noted that despite last week's barrage of U.S. tariff headlines, the rupee held firm in the 85.90–86.00 zone, underscoring the strength of the current range. The absence of a U.S.-India trade deal hasn't rattled the currency either.
"The U.S.–India trade deal news flow is one to watch,' said Apurva Swarup, vice president at Shinhan Bank India. "Depending on how it evolves, we could see the current range on the rupee widen slightly — although not drastically. The broader tone still feels anchored."
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