Multi-Asset Weekly Newsletter

RBI'S RESOLVE TO DEFEND RUPEE TO BE TESTED AS RUPEE NEARS ALL TIME LOWS AGAIN

US Developments:

Fed cuts rates by 25 bps, in line with expectations, but highlighted that a December rate cut is not guaranteed. Market probability for another 25 bps cut in December currently stands at ~62%.

US–China trade tone improved following Trump’s APAC meeting with Xi. China agreed to increase imports of U.S. soybeans and other agricultural goods.

The U.S. also avoided a disruption in rare earth metal supplies, while the recent 30% tariff on Chinese goods was reduced to 20%, signaling early steps toward de-escalation.

India–US trade ties have shown positive developments recently, but lack of tangible progress could lead to renewed market uncertainty.

The U.S. government shutdown has now lasted a month, and as it is on track to become the longest in history, it may soon shift market focus back from trade headlines. 

Foreign Exchange 

Commodity-linked currencies showed mixed performance: AUD was the only G10 currency to gain this week (+0.5%), while CAD was largely flat (-0.1%) and NZD declined (-0.5%).

European and safe-haven currencies weakened broadly: JPY (-0.7%), EUR & DKK (both -0.8%), SEK (-1%), NOK & CHF (both -1.1%), and GBP led the declines (-1.2%) against the Dollar.

ECB and BoJ maintained status quo this week, along expected lines. Pound was the worst performer as OBR (Office of Budgetary Responsibility) downgraded productivity forecasts for UK economy

Most Asian currencies strengthened against the Dollar, led by the Thai Baht (+1.3%), Malaysian Ringgit (+0.8%) and Korean Won (+0.6%). The Taiwanese Dollar and Chinese Yuan also saw marginal gains.

Some currencies weakened, with the Philippine Peso (-0.4%) and Indian Rupee (-1%) seeing the sharpest declines, while the Singapore Dollar and Indonesian Rupiah remained slightly weaker (-0.2% each).

Rupee Weakness Resurfaces: The Indian Rupee turned out to be the worst-performing currency this week, with markets going long on the Dollar post-festive season. Despite positive signals around the India–US trade deal, a hawkish Fed weighed heavily on sentiment, pushing the Rupee back to the weakest-performing Asian currency YTD. The currency traded in the 87.87–88.77 range, closing at the week's low of 88.77.

RBI Intervention via NDF: Recent RBI intervention has likely been concentrated in the offshore NDF market. With NDF expiries this week, the RBI appears to have refrained from fully rolling over short positions, which may have passed additional pressure onto the onshore spot market.

Short-term forwards (up to 1 year) remain relatively stable, with annualized yields moving from 1.93% (1M) to 2.18% (12M), indicating limited near-term pricing pressure in the forward curve.

Medium to long-term forwards show a gradual upward slope, rising from 2.50% (2Y) to 3.08% (5Y), reflecting expectations of higher carry and potential term premium over time.

3m ATMF implied volatility stands at 3.55%

FX Reserves dropped USD 6.9bn in the week ending 24th Oct to USD 695.3bn. 

   

Fixed Income 

US 10y treasury yield rose 10bps this week to 4.08%. 2y yield rose 8bps as well to 3.57%. Treasuries sold off on a hawkish Fed.

10y Yields across Eurozone, UK and Japan were little changed this week

Yield on the domestic benchmark 10y traded a 6.52-6.60% range but ended at 6.53%. Yields fell sharply after the RBI on Friday rejected all bids in the 2032 paper (Auction size was Rs 11000crs)

Banking system liquidity is now close to neutral and with that overnight MIBOR fixings have been happening in 5.64-5.69% range. 1y OIS rose 2bps to 5.47% while 5y OIS rose 5bps to 5.67%

1y T-bill us around 5.58% and 1y CD is at around 6.40%

10y AAA PSU spread is at 44bps while that for AAA NBFCs is at 82bps

FPIs invested net USD 2.3bn in domestic Bonds in October. 

Commodities 

Energy: Brent crude slipped 1.8% to $64.8, while US Natural Gas surged 24.8% to $4.12, indicating strong heating and power demand.

Metals: Aluminum edged up 0.9% to $2,884, Copper dipped 0.7% to $10,887, and Gold fell 2.7% to $4,002, while Silver remained flat at $48.7.

Precious metals sold off but recovered from lows on dips buying. 

Option Structures for Exporter Importer 

Exporter Option Strategy (Enhanced collar) 

Spot ref 88.76

Tenor 6m

Fwd level 89.65

Buy put 89.50

Sell call 89.65 with eki at 90.75

Net zero cost 

Importer Option Strategy (Seagull)

Spot ref 88.76

Tenor 3m

Buy call Atmf (89.20)

Sell put 88.50

Sell call 90.35

Net Zero cost 

Our Views: What we like? 

FX: We believe Dollar is rangebound overall against majors. We don't see this week's Dollar strength as a reversal. Market will test RBI's resolve to defend the Rupee. It will be interesting to see if the RBI continues to defend 88.80 resolutely or chooses to leave some powder dry in case Rupee weakens further. IFA Global Hedging barometer at 120 is indicating a mildly bearish view on Rupee over the medium term (Implied range 88.30-89.30 over next 6 weeks). Barometer range is 36-180 with 36 indicating peak USDINR bearishness. 

Fixed Income:  Yet again an uptick to 6.60% on the 10y failed and market quickly rallied. We have been sharing that 6.60% levels on 10y are attravtive to add duration to portfolio. Current 5y OIS are attravtive to pay for those looking to convert floating rate liabilities to fixed.

Commodities:  We are bullish on Copper and Brent. US-China trade truce bodes well for commodities overall. We see consolidation in Precious metals but maintain a slightly bullish bias. There are many who have not been able to participate in the rally will be keen to buy on dips.