FxWirePro: Indian inflation hits 12-month lows, rupee extends gaining streak – USD/INR RV trades via options

Today, there has been surprising news on the Indian inflation front. October headline CPI inflation slipped to 3.3% YoY basis on the back of soft food prices. This is well below RBI’s target range of 4-6%. Even though RBI targets headline inflation, it does keep a close watch on core inflation as well which strips out food and energy. 

While core inflation ticked up slightly to 6.2% YoY in October and is now uncomfortably above the 6% level. The bottom line for RBI is that there is seemingly no urgency to adjust rates higher at the final meeting for this year in December. By the same token, the firm core CPI reading points to strong domestic growth momentum. As such, it justifies RBI’s current policy stance of a “calibrated tightening”. 

For USDINR, it ticked up slightly yesterday towards the 72.90 level but it remains within the 72-74 range. The sharp drop in oil prices in the past month has helped it to ease back from the recent high of 74.50. Lower oil prices should also help to ease fears over both the current account and fiscal deficits and in turn support INR. 

Trade tips: 

Short USDINR 3M 25D strangle vs buy 1Y ATM, vega neutral. 

Short 6M vs long 1Y delta-hedged USDINR straddles, vega- neutral.

Currency Strength Index: FxWirePro's hourly EUR spot index is showing -102 (which is bearish), while USD is flashing at 73 (which is bullish), while articulating at (13:30 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex