The Indian Rupee (INR) has weakened slightly against the US Dollar (USD) at the close of 2025, with the USD/INR rate reaching around 90.35. This increase comes from a strong demand for USD among Indian importers, worsened by market interventions from the Reserve Bank of India (RBI) during record low INR levels of 91.55. The INR has declined over 6% this year, making it the worst-performing currency in Asia, while the US Dollar Index (DXY) dropped nearly 9.5%. Foreign Institutional Investors (FIIs) have sold Rs. 24,148.33 crore worth of shares due to high valuations of Indian stocks compared to those in China and Taiwan. The anticipated 50 basis point interest rate cut from the Federal Reserve (Fed) in 2026 puts pressure on the DXY, keeping it close to a 12-week low of 97.75. This rate cut expectation arises from a slack job market and reduced inflation, with CPI falling to an annual rate of 2.7% in November.

Technical Analysis

Technical analysis shows a short-term bullish outlook for USD/INR, currently at 90.3515 and above the 20-day Exponential Moving Average (EMA) of 90.1934. Investors are watching to see if prices stay above the 20-day EMA, which could signal a rise toward the high of 91.50 or a drop to 89.50. We see strong demand for US Dollars from Indian importers, driving the USD/INR pair back to 90.35. This demand is a response to the lower prices caused by the RBI’s significant market intervention earlier this month. It’s crucial to closely monitor importer activities, as they are the primary influence pushing the pair higher. Foreign investors have greatly contributed to the rupee’s weakness throughout 2025. Selling pressure has continued into the end of the year, with recent NSDL data revealing net outflows from equities have exceeded ₹1.5 lakh crore for 2025. This marks a significant change from the net buying trend of 2023 and 2024, indicating a major shift in investor sentiment. While the rupee remains weak, it’s essential to consider the softness in the US Dollar, which is trading near 12-week lows. Expectations for Federal Reserve rate cuts in 2026 solidified after recent reports showed Non-Farm Payrolls growth slowing to 95,000 in November. This dovish outlook could limit how high the USD/INR pair can rise.

Market Volatility

The tension between the weak rupee and the soft dollar suggests upcoming high volatility. We’ve seen one-month implied volatility for USD/INR rise above 6.5%, a level not reached since the global banking concerns earlier in 2023. Traders might consider strategies like long straddles or strangles to capitalize on significant price movements in either direction. From a technical viewpoint, the pair staying above the 20-day moving average of approximately 90.20 is an immediate bullish signal. If it fails to hold this level, we could see a swift retreat toward the December lows near 89.50, potentially unsettling recent long positions. These levels will help inform our entry and exit points for short-term trades in early 2026. Create your live VT Markets account and start trading now.

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