The Indian Rupee has sharply declined against the US Dollar, landing at around 90.85. This drop occurred despite the Reserve Bank of India (RBI) maintaining the Repo Rate at 5.25%. Earlier in 2025, the RBI cut the rate by 125 basis points, and the economy is buoyed by trade agreements with the US and the EU. Governor Sanjay Malhotra announced that interest rates will stay low for a while. The RBI expects GDP growth to exceed expectations in the upcoming quarters, largely due to these trade agreements. More updates will come in the April meeting.

Fluctuating Trade Performance

After the trade deals were confirmed, the Indian Rupee initially strengthened due to lower US tariffs. However, Foreign Institutional Investors (FIIs) turned net sellers, offloading Rs. 2,150.51 crore on Thursday. This reversed gains made from stock purchases after the trade truce. On the global stage, the US Dollar Index dipped slightly, as the likelihood of a Federal Reserve rate cut grew due to weak job data. The Job Openings and Labor Turnover Survey (JOLTS) revealed fewer job openings than anticipated, and the private sector saw disappointing job growth in January. The USD/INR is recovering towards the 20-day Exponential Moving Average (EMA), with the Relative Strength Index (RSI) nearing neutral territory. Future strength of the Rupee will rely on breaking the 20-EMA at 90.95. If not, there could be downside risks. Given these developments, the Indian Rupee faces mixed pressures, creating a complicated trading landscape. The recent trade deal with the US, which reduced tariffs on Indian goods to 18%, initially boosted the Rupee this week. However, the quick exit of foreign funds signals that the initial optimism may be fading.

RBI Strategy and Global Market Impact

The Reserve Bank of India is carefully balancing its position by keeping the repo rate at 5.25%. This decision follows significant cuts totaling 125 basis points in 2025. Governor Malhotra’s comments suggest potential future rate cuts, which could weaken the Rupee long-term. This cautious approach comes even with an optimistic growth outlook, leading to uncertainty about the RBI’s main priorities. Historically, a surge in foreign investment and Rupee strength followed the 2014 general elections, leading to a multi-year rise. However, as of late 2025, FIIs had already pumped over $22 billion into Indian equities, making the market vulnerable to profit-taking. The recent outflow, though small, might signal the beginning of such a trend if global uncertainties rise. In contrast, the US Dollar is under pressure due to a soft labor market. December’s JOLTS showed job openings at 6.542 million, significantly below the 7.2 million forecast. This weak data has raised the odds of a Federal Reserve rate cut in March. The market now estimates a 22.7% chance of a cut, up from just 9.4% two days ago. This slowdown aligns with other recent US economic data, including a modest 1.9% growth in Q4 2025 GDP, which fell short of expectations. Additionally, the latest inflation rate for January 2026 remained steady at 2.3%, giving the Fed room to adjust its policies without increasing price pressures. Everyone is now focused on the delayed Nonfarm Payrolls report, which will be key for the dollar’s direction in the upcoming days. For traders focusing on derivatives, the current uncertainty in USD/INR suggests that strategies aimed at benefiting from volatility are wise. Implementing a straddle or strangle before the US payrolls report might be a good way to take advantage of significant price movements. For those anticipating a drop in the Rupee due to FII outflows, buying USD/INR call options offers an affordable way to bet on a rise above the critical 90.95 level. It’s worth noting that the Rupee is particularly weak against the Australian Dollar. This indicates some of the Rupee’s weakness is not solely due to the general strength of the US Dollar. Traders might explore AUD/INR call options to either hedge against or speculate on further declines of the Indian currency against commodity-linked currencies. Create your live VT Markets account and start trading now.

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