The Indian rupee fell further against the US dollar on Tuesday, pushing USD/INR towards 93.50. Selling followed the Reserve Bank of India withdrawing limits on state-run banks’ non-deliverable forwards and curbs on rebooking foreign exchange derivative contracts.
Market risk mood improved after reports said Iran agreed to resume talks with the US on a permanent ceasefire. The Wall Street Journal reported Iran would send a team to Islamabad on Tuesday, though Tehran has not confirmed this.
Rupee Weakness And Policy Shift
The US has said Vice President JD Vance is travelling to Islamabad to lead talks, expected on Tuesday night or Wednesday morning. On Monday, sentiment had turned risk-averse after Iran said there was “no plan for a second round of negotiations with the US for now”.
Foreign Institutional Investors were net sellers of Indian shares on Monday, selling Rs. 1,059.53 crore. In the prior three sessions, they bought Rs. 1,731.71 crore in total, averaging Rs. 577.24 crore per day.
Traders are watching Kevin Warsh’s confirmation hearing and US Retail Sales data for March at 12:30 GMT. Retail Sales are forecast to rise 1.4% month-on-month versus 0.6% in February.
USD/INR is back above the 20-day EMA at 93.08, with RSI (14) in the 40.00–60.00 range. Levels noted include 94.00 on the upside and 92.46 on the downside.
Market Focus And Trade Setup
The Indian Rupee is facing renewed pressure, pushing the USD/INR pair toward the 93.50 mark. This weakness is primarily driven by the Reserve Bank of India’s decision last year in 2025 to remove trading curbs on banks, which has taken away a key layer of support for the currency. We should anticipate that this policy shift will continue to allow for greater downward moves in the Rupee.
Adding to the complexity is the renewed possibility of US-Iran peace talks, which creates significant market volatility. While a permanent ceasefire would typically be a “risk-on” event that strengthens emerging market currencies, the recent on-again, off-again nature of the talks suggests caution. The last time a ceasefire was announced in late 2025, we saw Brent crude prices drop nearly 4% in two days, showing how sensitive markets are to this geopolitical situation.
The bearish sentiment towards Indian assets is reinforced by persistent outflows from Foreign Institutional Investors (FIIs). Last year, we saw FIIs pull a net of over $3.5 billion from Indian equities in the final quarter of 2025, and this trend of selling appears to be continuing. This consistent selling pressure from foreign funds directly contributes to the Rupee’s weakness against the Dollar.
From the US side, we are watching for signs of continued economic strength, which would further bolster the Dollar. Strong US retail sales data, like the 1.4% growth expected, would reinforce the case for a hawkish Federal Reserve, especially with a new chair nominee like Kevin Warsh. Looking back at 2025, the Dollar Index (DXY) climbed from 102 to over 106 in the second half of the year on the back of resilient US economic data.
Given these factors, the path of least resistance for USD/INR appears to be upward, with the 94.00 level being a realistic target. Traders should consider strategies that profit from both a rising exchange rate and increased volatility. Buying call options on the USD/INR pair could be an effective way to capitalize on a potential breakout above 93.50 while limiting downside risk.
