The Indian Rupee strengthened against the US Dollar on Monday, thanks to the Indian government’s budget for FY 2026-27. The USD/INR rate fell to approximately 91.60 as the Reserve Bank of India stepped in to stabilize the currency. India’s stock markets rose on Monday after a sharp drop following the budget announcement. Some key highlights include a surprise rise in the Securities Transaction Tax, a 22% increase in defense spending, and a ₹12.2 lakh crore boost in capital expenditure.

RBI’s Monetary Policy Decision

A crucial upcoming event for the Indian Rupee is the RBI’s monetary policy decision this Friday. In December, the RBI lowered the Repo Rate to 5.25% and announced a liquidity boost of ₹1.5 lakh crore. In currency movements, the Indian Rupee showed strength against the Australian Dollar. The USD/INR remains above the key support level of the 20-day EMA, showing continued buying interest. The Rupee’s value is influenced by India’s economic growth, oil prices, inflation, and the US Dollar demand from importers. Important economic indicators, like US Nonfarm Payrolls data and ISM Manufacturing PMI, will be closely monitored for market effects. The government’s unexpected rise in the Securities Transaction Tax is currently a significant factor, as it directly increases trading costs for futures and options. We’ve already seen that F&O volumes on the National Stock Exchange dropped about 15% this morning compared to last week’s average. This rise in costs means we will need to aim for larger price movements to stay profitable in short-term trades. On the currency side, the Reserve Bank of India has taken clear action by intervening to push the USD/INR rate back toward 91.60. Market sources estimate that the central bank sold between $500 million and $1 billion this morning to prevent the Rupee from hitting historic lows. This decisive measure sets a strong resistance level, so we should be cautious about making large long positions in USD/INR for now.

US Dollar’s Firmness Globally

This is part of a broader trend; looking back at 2025, the RBI sold over $20 billion in the foreign exchange market to protect the currency. Their actions today indicate a continuation of this strategy, suggesting we can expect the central bank to manage any significant weakness in the Rupee in the upcoming weeks. Therefore, selling USD/INR when it rallies towards record highs could be a smart tactic. At the same time, the US Dollar remains strong globally after the nomination of Kevin Warsh as the next Fed Chair. This creates a tug-of-war, with a strong dollar pushing USD/INR up while the RBI’s intervention pushes it down. In the near term, we may not see clear trends, but rather increased volatility and range-bound trading. This Friday will be crucial, as we await both the RBI’s monetary policy announcement and the US Nonfarm Payrolls (NFP) report. Current estimates for the US NFP data predict a net gain of 185,000 jobs, which could further strengthen the dollar if achieved. The combination of these two major events makes it risky to hold open positions into the end of the week. After the 25 basis point rate cut in December 2025, we expect the RBI to keep the repo rate steady at 5.25% this Friday. The new expansionary budget could lead to inflation, making the central bank cautious about further easing. A decision to maintain rates would be seen as somewhat supportive for the Rupee. Create your live VT Markets account and start trading now.

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