The Indian Rupee (INR) is falling against the US Dollar (USD), with the USD/INR pair rising to new highs of 90.86. The currency is struggling due to uncertainty surrounding a potential US-India trade deal. A two-day meeting between US and Indian officials did not lead to any agreements on the trade deal. While US Trade Representative Jamieson Greer described India’s offer as the “best ever,” the absence of a formal agreement continues to affect the Rupee negatively.

Indian Equity Market and Investor Sentiment

India’s Commerce and Industry Minister, Piyush Goyal, urged the US to sign the trade deal if they are pleased with the offer. In December, there may be continued foreign selling in the Indian equity market, with Foreign Institutional Investors offloading shares worth Rs. 18,491.29 crore. India’s Consumer Price Index (CPI) for November showed inflation at 0.7%, up from 0.25% in October, which aligns with expectations. The USD/INR pair remains above the 20-day Exponential Moving Average (EMA) of 89.8183, indicating a short-term upward trend. The 14-day Relative Strength Index (RSI) is at 69.27, showing strong bullish momentum but suggesting some risk of fatigue. If prices break above 90.86, they could move towards 92.00. Conversely, closing below the 20-day EMA might signal a drop to 89.51. India has seen an average growth rate of 6.13% from 2006 to 2023, attracting a lot of foreign investment. Oil prices strongly affect the Rupee due to India’s dependence on imports.

Impact of External Factors on the Rupee

Changes in inflation affect the Rupee’s value. If inflation exceeds 4%, the Reserve Bank of India (RBI) may adjust interest rates. India often faces a trade deficit with imports exceeding exports, which drives up USD demand. Volatility in USD demand also impacts the Rupee’s strength. With the Rupee trading at historic lows against the US Dollar, the trend of weakness is likely to continue. The primary issue is the ongoing uncertainty regarding the US-India trade deal, keeping investors nervous. Without a formal agreement, we expect sentiment around the Indian currency to remain negative. This uncertainty is leading to significant capital outflows, with foreign investors withdrawing funds from Indian equities. In December 2025, foreign institutions have sold a net total of Rs. 18,491 crore, reminiscent of the outflows seen during the global monetary tightening of 2022 and 2023. This trend puts direct downward pressure on the Rupee. From a technical perspective, the uptrend in USD/INR remains strong, with prices staying well above the 20-day moving average of about 89.82. Traders might consider this level for potential buying on dips, especially if there’s an effort to break the recent high of 90.86. A successful break above this level could lead to a push towards the psychological level of 92.00. The Relative Strength Index is at 69.27, indicating that while bullish momentum is strong, the pair is nearing overbought conditions. We should be cautious of a possible short-term pullback or consolidation. A significant close below the 20-day moving average would signal weakening in this bullish trend. On the domestic side, November’s retail inflation of 0.7% is notably low and well below the RBI’s target of 4%. This situation gives the central bank little reason to increase interest rates, which have been held steady at 6.50% since the last policy meeting in early December 2025. With low inflation and stable or declining interest rates, the Rupee becomes less appealing for foreign investment. Additionally, external factors, like oil prices, significantly impact India’s import costs. With Brent crude prices rising to around $85 per barrel due to winter demand and recent OPEC+ production adjustments, demand for US Dollars from Indian importers is likely to stay high. This scenario adds further fundamental weakness for the Rupee in the weeks ahead. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now