Foreign Institutional Investors Activity

The Indian Rupee (INR) has fallen to its lowest point in nearly two weeks against the US Dollar (USD), approaching a rate of 90.50. This dip follows US President Donald Trump’s warning about raising tariffs on Indian goods due to ongoing issues with Russian oil. Trade tensions escalated after Trump’s announcement of increased import duties on India to 50% in 2025, which includes a hefty 25% tariff on Russian oil imports. These tensions drove Indian importers to demand more USD, causing foreign funds to exit and pushing the rate to a high of 91.55. Foreign Institutional Investors (FIIs) cut down their holdings, selling Rs. 3,06,418.88 crore in 2025 and an additional Rs. 2,978.80 crore in January 2026. The rise in the USD/INR rate is linked to a strong demand for USD driven by cautious investor sentiment and geopolitical concerns in Venezuela, Colombia, and Iran. Due to geopolitical instability, many investors are turning to safer assets like the US Dollar. The possible US takeover of Venezuela’s oil sector might impact global crude supply, which could benefit the Indian Rupee if energy prices drop. Since India imports 85% of its energy, lower crude costs would be advantageous. The USD is likely to see fluctuations with upcoming US reports, including the ISM Manufacturing PMI and important Nonfarm Payrolls data. Predictions indicate a slight rise in the ISM Manufacturing PMI, while Nonfarm Payrolls could influence the Federal Reserve’s policies. Interest rates are expected to stay between 3.50% and 3.75%.

Implications For Indian Rupees

Currently, the USD/INR pair stands at 90.4470. The 20-day Exponential Moving Average is rising at 90.2130, and the 14-day Relative Strength Index has reached 56.86, indicating positive momentum. Support is initially at the 20-EMA. If the rate dips below this, it could fall to around 89.50. The previous high of 91.55 represents important resistance. With the renewed tariff threats from the US, the USD/INR pair is likely to continue rising. This situation is reminiscent of 2025, when trade frictions and substantial capital flight drove the currency pair to an all-time high. Traders should prepare for further Rupee weakness. The outflow of foreign capital is a significant contributor, with FIIs selling nearly Rs. 3,000 crore in the early days of this year. This comes after a considerable sell-off of Rs. 3.06 lakh crore in 2025, mirroring the capital flight seen in 2022 when the Fed tightened policies by over Rs. 2.75 lakh crore. We can expect this trend to persist as long as trade uncertainty remains, putting additional pressure on the Rupee. The Reserve Bank of India’s actions will be important, but its resources are limited. Previous interventions to defend the Rupee in 2025 led to a notable decline in foreign exchange reserves, similar to the over $70 billion drop experienced in 2022. Traders should keep an eye on weekly reserve data for indications of major interventions, which might only offer temporary support for the INR. In the coming weeks, purchasing USD/INR call options appears to be a wise move to benefit from a potential rise toward the 91.55 level. Increased implied volatility due to geopolitical risks makes options a valuable risk management tool. This strategy allows for gains while limiting maximum losses if market conditions change unexpectedly. From a risk management view, the critical level to watch is the 20-day EMA around 90.21. If the daily close falls below this support, the bullish outlook weakens, hinting at a potential deeper correction. Long positions should reassess if this level is breached. The evolving situation in Venezuela adds a long-term factor to consider. If the US successfully improves Venezuelan oil production, falling global crude prices would benefit the Rupee. Historical data shows that a sustained $10 drop in oil prices can enhance India’s current account balance by nearly 0.5% of GDP. In the short term, all attention will be on this Friday’s US Nonfarm Payrolls report. A strong jobs figure might reinforce expectations for steady interest rates from the Fed, possibly boosting the US Dollar further. This report will be a major source of volatility for the USD/INR pair. Create your live VT Markets account and start trading now.

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