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Boxed-in Indian Rupee revitalises appetite for short-term volatility

The Indian rupee’s narrow range in the last two weeks, along with established support and resistance, has generated interest from large corporations and interbank players to sell short-term volatility.

The rupee traded in a tight intraday range of 12 paisas on Monday, but it was relatively quiet on Tuesday. It rose by about 0.1%, to 85.90 US dollars.

The rupee's trading range has shrunk to 50-60 paisas over the last two weeks. This brings the 10-day realized volatility down from 6.5% to just 4.3%. The currency has been trading in a narrow range for the past two weeks, with support around 86.00 and opposition near 85.20-85.30.

Corporates and banks are interested in selling short-dated volatility. Two bankers reported that a prominent Indian conglomerate had inquired about selling 1-week-to-1-month volatility. This strategy pays off if rupee trades within its current range.

"Volatility Selling is Making a Comeback In A Small Way, And It Makes Sense Given The Recent Price Action." The range of the rupee feels fairly well set for now and its response to headlines is limited," said a head of FX at a private bank.

He said the rupee found support at around 86 without any visible intervention by the Reserve Bank of India. This suggests that the market position is enough to keep the dollar/rupee confined.

The rupee remained stable in the 85.90 to 86.00 range despite the barrage of headlines about U.S. Tariffs last week, underlining the strength of this current range. Currency has also not been affected by the absence of an U.S. India trade agreement.

Apurva Swarup is vice president of Shinhan Bank India. She said, "The U.S. India trade deal news stream is something to keep an eye on." "Depending on what happens, the range of the rupee could widen slightly - but not dramatically. "The broader tone feels still anchored." (Reporting and editing by Nimesh vora)

(source: Reuters)