The Indian Rupee rose sharply against the US Dollar, with the USD/INR rate dropping over 1% to nearly 90.00, down from a peak of 91.56. This change comes after the Reserve Bank of India (RBI) stepped in to support the currency. State-run banks sold US Dollars aggressively, likely on behalf of the RBI. Despite this, the Rupee remains the weakest Asian currency this year, having fallen nearly 6.45%.
Foreign funds continued to exit the Indian stock market, with no trade announcements between the US and India. The ongoing trade deadlock with the US increased demand for Dollars from Indian importers, further weakening the Rupee.
RBI Governor’s Remarks
RBI Governor Sanjay Malhotra mentioned that interest rates would stay low for an extended period, noting that a surprising GDP figure improved the central bank’s forecasts. Foreign Institutional Investors (FIIs) have sold off equities net in seven of the last eleven months, with significant selling in December.
In the US, the Dollar Index (DXY) climbed 0.17% despite weak economic data. Though Nonfarm Payrolls and PMI data are concerning, experts believe they won’t significantly impact the Federal Reserve’s policy direction.
Technical analysis shows that USD/INR is holding key support at the 20-day EMA, showing a bullish trend. The pair is currently trading at 90.5370, needing to stay above this support to maintain its upward momentum.
The RBI’s significant intervention has pushed the USD/INR pair back toward the 90.00 mark, leading to a notable dip. However, we don’t see this as a trend reversal; instead, it presents a buying opportunity in the ongoing uptrend at a more attractive price. The factors that drove the pair to its peak of 91.56 are still relevant.
Market Dynamics And Opportunities
Fundamentally, the Rupee is under pressure from ongoing capital outflows and the RBI’s dovish outlook. With FIIs withdrawing nearly Rs. 24,000 crore from Indian stocks this month and Governor Malhotra indicating prolonged low rates, less incentive exists for holding Rupees. Past heavy interventions by the RBI in 2022 showed that while they could slow the Rupee’s decline, they couldn’t reverse it against a strong global Dollar.
Conversely, the US Dollar remains resilient despite some weak domestic data. The market largely overlooks the rise in the unemployment rate to 4.6% and soft PMI figures, attributing the weakness to a recent government shutdown. According to the CME FedWatch tool, expectations for a Federal Reserve rate cut in January 2026 remain very low, supporting the dollar’s strength.
Our immediate focus should be on the upcoming US Consumer Price Index (CPI) data. A high inflation report would likely strengthen the Fed’s hawkish stance, pushing the dollar higher and diminishing the impact of the RBI’s intervention. Analysts forecast November’s annual inflation rate to be around a sticky 3.4%, which exceeds the Fed’s target.
In this context, we should consider this pullback as an opportunity to enter long positions in USD/INR. Buying call options to limit risk or starting long futures contracts near the 90.00-90.15 support range appears to be a wise strategy for the coming weeks. The technical outlook is favorable, as the pair remains above its key 20-day moving average, indicating the primary bullish trend is still intact.
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