The Indian Rupee started lower against the US Dollar, with the USD/INR rate nearing 90.35. This comes after a surge in demand for US Dollars from Indian importers following a sell-off in mid-December caused by the Reserve Bank of India’s (RBI) actions. The RBI sold a significant amount of US Dollars to stabilize the Rupee, which had dropped to record lows of about 91.55. This year, the Indian currency has fallen over 6% against the US Dollar, making it the poorest performer among Asian currencies, despite the US Dollar Index decreasing by nearly 9.5%.

Foreign Investor Withdrawal Impact

In December, Foreign Institutional Investors (FIIs) withdrew Rs. 24,148.33 crore from Indian equities. This decision was driven by high stock valuations compared to those in China and Taiwan. This week, attention will turn to the Federal Fiscal Deficit data for November. The daily chart for USD/INR shows the pair at 90.3515, above the 20-day Exponential Moving Average, indicating a short-term upward trend. With a Relative Strength Index of 55, momentum appears steady. If the price stays above 90.1934, it may support a rise towards the all-time high of 91.50. The FOMC Minutes will discuss US monetary policy, potentially impacting the direction of the US Dollar. These details are crucial for anticipating interest rate changes. As of December 29th, 2025, the Rupee’s recent strength from the RBI’s intervention is fading, with the USD/INR climbing back towards 90.35. This is largely due to ongoing US Dollar demand from Indian importers, exacerbated by India’s trade deficit widening to $30 billion in November 2025. This persistent demand suggests the USD/INR pair may continue to rise.

Rupee Weakness and Investor Behavior

This year, the Rupee has shown substantial weakness, depreciating over 6% even while the US Dollar Index decreased. This decline is mainly due to foreign investors selling Indian assets, with FIIs withdrawing nearly $20 billion from Indian equities in 2025—one of the largest outflows since the 2013 taper tantrum. This selling pressure is likely to persist into the new year. From a technical standpoint, the pair holding above its 20-day moving average at about 90.19 indicates that the short-term upward trend remains intact. Dips towards this level may offer buying opportunities for traders. Thus, buying call options or using bull call spreads could be a smart strategy to take advantage of a potential retest of the all-time highs near 91.50. We shouldn’t expect the RBI to intervene as strongly as it did in mid-December. Protecting the currency has been expensive, with reports showing India’s foreign exchange reserves have decreased by over $40 billion in the last quarter of 2025. This reduction in reserves suggests the RBI might permit a more gradual depreciation, potentially increasing market volatility. Looking ahead, the upcoming US Federal Fiscal Deficit data this week and the FOMC minutes in the coming weeks will be crucial. Any signals of a more aggressive approach from the US Federal Reserve regarding interest rate policy for 2026 could further strengthen the US Dollar. This would increase upward pressure on the USD/INR exchange rate. Create your live VT Markets account and start trading now.

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