The Indian Rupee has dropped significantly against the US Dollar, with the USD/INR exchange rate close to 90.80. This decline stems from concerns about ongoing trade deals between the US and India, affecting market trust.

Federal Reserve Interest Rate Update

Recently, the Federal Reserve lowered interest rates by 25 basis points to a range of 3.50%-3.75%. Experts expect only one more rate cut in 2026, as the Fed cites weak labor market conditions influencing this decision. The US and India are still negotiating their trade agreements, aiming for fair outcomes. The Reserve Bank of India has sold US Dollars to help stabilize the Rupee, which has been caught in trade tensions. In the currency markets, the Indian Rupee has weakened against major currencies. The Swiss Franc has strengthened the most. Uncertainty in trade has led Foreign Institutional Investors to sell Indian stocks throughout December, resulting in an outflow of Rs. 16,470.35 crore. The US Federal Reserve greatly influences the US Dollar by adjusting interest rates. They use quantitative easing and tightening to manage economic conditions, which impacts the Dollar’s value differently. With the USD/INR pair reaching an all-time high of nearly 90.80, market anxiety over US-India trade discussions is a significant factor. Foreign investors have withdrawn over Rs. 16,470 crore from Indian stocks this month, increasing pressure on the Rupee. This pattern of selling is similar to trends during earlier periods of global concern in 2023, indicating heightened risk aversion.

Reserve Bank of India Actions

Although the Federal Reserve recently cut its rate to 3.50%-3.75%, the US Dollar’s weakness is overshadowed by challenges faced by the Rupee. The Dollar Index (DXY) may be close to a seven-week low, but this situation highlights issues specific to the Rupee. The latest US CPI data from last month showed inflation easing to 2.9%, supporting the Fed’s decision and suggesting limited strength for the Dollar. We need to keep a close eye on the Reserve Bank of India (RBI), as they may be selling dollars to curb a sharper decline. Looking back at 2022 and 2023, the RBI used significant foreign exchange reserves to defend the Rupee, though they could only slow its depreciation. We anticipate similar interventions now, which might cause temporary dips in the USD/INR pair that could provide buying opportunities. The upcoming Indian retail inflation data for November, due tomorrow, will be crucial. The consensus estimates are around 5.2%, still above the RBI’s 4% target. A higher-than-expected number might push the RBI towards a more aggressive approach, offering some short-term relief for the Rupee. Given the current uncertainty, it’s wise to consider options to manage risk. Buying call options on USD/INR is costly due to high volatility, so bullish call spreads could be a more affordable way to bet on movement toward the 92.00 level. If a trade deal is announced, buying short-term puts could allow for profit from a potential drop. The technical trend remains strongly bullish, with the pair trading above its 20-day moving average of 89.74. Any pullbacks toward this support level could be seen as good entry points for long futures positions. As long as we stay above this average, the path forward for the USD/INR likely continues to rise. Create your live VT Markets account and start trading now.

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