INR: SocGen Recommend Initiating Short Position in USD/INR

The rupee recorded its best session in close to 4 months following firm RBI intervention overnight. USD/INR ended the session ~0.8% lower, with weakness exacerbated by a Bloomberg report which stated that the central bank considers recent weakness in the rupee as driven by speculative attacks and is prepared to continue its market intervention until the currency settles at a stronger level.

• SocGen believe that USD/INR has already priced in most of the key INR-negative factors. They note that unless traditional INR-negative drivers resurface, they do not anticipate any new bearish catalysts for the INR. They add that the RBI’s pledge to stabilise the currency presents a compelling case for tactically short USD/INR trade.
• SocGen recommend initiating a short position in 1-month USD/INR at 88.28, targeting 86.00, with a stop at 89.40. Their empirical models suggest that the fair value of USD/INR, based on traditional macro and flow variables, is around 86.00. They note that further escalation in trade tensions and rising oil prices pose risks to the trade.