Currency options USDINR: September series

US Fed has refrained from announcing unconventional measures (QE3) to prop up slow recovery of US economy and high unemployment rate. Fed chairman, Ben Bernanke statement from Jackson hole was similar to August meet statement. They are ready to act as and when needed but avoided on giving exact timelines. Risk assets have rallied in anticipation of QE3. Euro has also rallied in recent months to 1.265 odd levels. Euro has risen also on hopes of action from ECB in its September 6 meet. Last month, ECB President Mario Draghi statement of “whatever it takes” has also supported EU common currency. Some measures are also expected from ECB in its September 6 meet.

Rupee, which is tracking Euro and higher FII inflows in August has stabilized around 55-56 levels. There is also hope from Indian government on reform front. Although, those hopes are receding fast and it looks difficult to me that congress government will announce any reform measures. Given all these factors I don’t think Indian Rupee will breach 56 in September series also. I have sold USDINR OTM calls of current series. There are downgrade fears of India’s sovereign rating by rating agencies. I think downgrade fears are very real and a couple of months of more inaction on the part of government might prompt rating agencies. It goes without saying that downgrade will be catastrophic for Indian currency and Indian equity markets in short-term.


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