The Indian Rupee climbed against the US Dollar, causing the USD/INR pair to drop by nearly 0.5% to about 89.80. This increase happened after the Reserve Bank of India took steps to reduce strong movements favoring the USD/INR. After several actions in December 2025, the Reserve Bank of India intervened again in 2026 when USD/INR reached a high of 91.55. Still, ongoing trade tensions between the US and India, along with Foreign Institutional Investors selling off Indian stocks, are expected to keep pressure on the Rupee.

US-India Trade Tensions

US President Donald Trump raised tariffs on India due to its purchase of Russian oil, which already faced high tariffs of 50%. These trade tensions could lower India’s GDP by about 0.3% to 0.5% and negatively impact investor sentiment, leading to capital outflows. In 2025, Foreign Institutional Investors withdrew Rs. 3,06,418.88 crore from Indian markets. In January, selling slowed slightly to Rs. 3,122.68 crore, with sales of Rs. 143.88 crore on consecutive days. Upcoming US reports, like ADP Employment Change, ISM Services PMI, and JOLTS Job Openings, will shape expectations about the Federal Reserve’s policies. The USD/INR pair remains cautious around the key level of 90.00, with indicators suggesting potential further declines if momentum doesn’t bounce back.

RBI Intervention and Market Implications

The recent move by the Reserve Bank of India to push USD/INR below 90.00 is an important signal for the short term. This mirrors their actions from December 2025, when the pair hit 91.55, indicating a strong resistance level from the central bank. Selling out-of-the-money call options above 91.00 could be a good strategy to take advantage of this perceived upper limit. However, we can’t overlook the pressure on the Rupee from ongoing foreign investor exits, which totaled over Rs. 3 lakh crore in 2025. Combined with the trade tensions with the US, this suggests that RBI’s support may only last for a short time. This creates uncertainty, especially with vital US job data coming soon. The major factor will be the US jobs report, especially the Nonfarm Payrolls (NFP) coming this Friday. The Federal Reserve made three interest rate cuts in 2025 due to a weakening job market; any significant change in this data could prompt a strong reaction in the US Dollar. Historically, NFP results that differ by more than 50K from expected numbers have led to an average 0.4% shift in the Dollar Index in the first hour after release. Given these mixed signals, it might be wise to buy volatility before Friday’s data. A long strangle options strategy—buying both an out-of-the-money call and a put that expire in the coming weeks—could be beneficial for capitalizing on a big price movement in either direction. This would allow us to gain whether the US data strengthens the Dollar or confirms its recent weakness. Create your live VT Markets account and start trading now.

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