The Indian Rupee faced challenges against the US Dollar during early trading on Tuesday but later steadied at about 88.40 INR/USD. This stability came despite rising oil prices, with West Texas Intermediate Crude Oil remaining at $61.50 due to new sanctions imposed by the EU and the US on Russian oil companies. Countries like India, which depend heavily on oil imports, feel the impact of rising oil prices, which affect their currencies. Additionally, the Indian Rupee faces pressure from decreased foreign investment in Indian stocks and recent tariff increases from the US on Indian imports.

The US Dollar and Currency Market Dynamics

The US Dollar fell as traders expected a Federal Reserve interest rate cut of 25 basis points, prompted by worries about job market conditions and slow inflation growth. The Dollar Index is currently down 0.15%, trading around 98.60, with the latest US CPI report showing only a slight inflation increase. Negotiations between the US and India are making headway, which could soon strengthen the Indian Rupee. Meanwhile, upcoming trade talks between the US and China may further affect market trends. On a technical level, the USD/INR pair has eased to around 88.40, with 87.07 acting as a key support level and 89.12 as resistance. The Indian economy has seen 6.13% growth since 2006, which impacts the Rupee, along with factors like oil prices, inflation, and seasonal demand for US Dollars. Currently, the Indian Rupee is facing two opposing forces, stabilizing at around 88.40 against the US Dollar. On one side, the expected Federal Reserve interest rate cut this Wednesday is weakening the Dollar. On the other side, rising oil prices and decreased investment inflows are putting pressure on the Rupee. Due to this tension, traders should brace for increased volatility instead of betting on a specific direction in the coming days. The Fed’s announcement is a crucial event; any unexpected guidance could trigger a sharp shift in the USD/INR pair. Strategies such as a long straddle could be beneficial, as they would profit from significant price movements in either direction.

Foreign Investor Activity and Its Impact on the Rupee

Foreign Institutional Investor (FII) activity has been noticeably low, raising concerns about the strength of the Rupee. Recent data from the National Securities Depository Limited (NSDL) reveals FII outflows of around $1.2 billion in the first three weeks of October 2025. This marks a stark contrast to the nearly $4 billion in inflows during the second quarter, signaling a cautious approach from foreign investors. Rising oil prices continue to be a challenge for the Rupee, as India is heavily reliant on energy imports. With WTI crude at about $61.50, the pressure on India’s import expenses is rising, similar to past situations when oil prices surged after geopolitical tensions in 2022. According to India’s Petroleum Planning and Analysis Cell (PPAC), the country’s crude import costs increased by 8% year-on-year last quarter, directly affecting the demand for US Dollars. The market has largely anticipated the upcoming Fed decision, with the CME FedWatch Tool showing a 92% chance of a 25-basis-point cut this Wednesday. Therefore, the actual rate reduction might not trigger significant market movement. The key for traders will be the Fed’s commentary on future policies; any indication of further cuts in December could push the Dollar lower. The most significant unknown factor for the Rupee in the coming weeks is the outcome of US-India trade negotiations. A successful deal could serve as a strong positive factor, helping to strengthen the Rupee and bringing the USD/INR pair closer to the August low of 87.07. Conversely, stalled negotiations could lead to negative sentiment, potentially testing the pair’s all-time high near 89.12. However, we must consider the Reserve Bank of India’s (RBI) capability to manage extreme market fluctuations. The RBI’s latest figures show that foreign exchange reserves are steady at around $650 billion, giving it ample resources to intervene if necessary. This suggests that while the USD/INR pair may rise, the central bank is well-equipped to prevent a chaotic decline of the Rupee. Create your live VT Markets account and start trading now.

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