Citi Sees Beaten-Up Rupee Rebounding With Short-Term Options Bet

Citigroup Inc. is advising investors to position for gains in the Indian rupee amid signs that a trade deal with the US is imminent.

The rupee may strengthen to 87 per dollar at the “bare minimum,” with a potential for further gains toward 86.5 levels, strategists including Rohit Garg wrote in a note. That would imply a gain of about 2.5% from Thursday’s level. Citi recommends buying a three-month option that profits if the rupee advances past the 88 level.

“While a trade agreement with the US seems to be well telegraphed, we still think that an actual culmination of a deal should inject some positivity into the rupee,” they wrote.

Citigroup joins global peers including ING Bank NV and Societe Generale SA in a rebound in the Indian rupee, one of Asia’s worst-performing currencies this year.

Optimism has grown after President Donald Trump said the US and India are “pretty close” to reaching a trade deal, signaling a potential thaw in tensions that have strained relations between Washington and New Delhi. Indian exports currently face US tariffs of about 50%, among the highest in Asia.

Valuations are also supportive for the rupee heading into favorable seasonality, and short rupee positions have also reached extreme levels seen earlier this year, the Citi report said.