The Indian Rupee has dropped to about 90.86 against the US Dollar due to uncertainty over a trade deal between the US and India. In December, Foreign Institutional Investors have been net sellers, offloading assets worth Rs. 18,491.29 crore. This decline in the Rupee is linked to the lack of results from discussions between US Trade Representative Rick Switzer and Indian negotiators. Traders are waiting for India’s retail CPI and the US NFP data for November for more clues.

US Dollar Strength

The USD/INR pair has hit a high of 90.86, showing that the US Dollar is outperforming the Indian Rupee. The US Dollar Index is trying to rebound after reaching a seven-week low of 98.13. The US Federal Reserve plans a Fed Funds Rate of 3.4% by 2026, with only one rate cut expected next year. Market attention is centered on the upcoming Nonfarm Payrolls data for hints about future monetary policy. Currently, USD/INR is at 90.6885, with a 20-day EMA of 89.8183 guiding the trend. If it breaks above 90.86, it could rise to 92.00, while RSI readings near 70 suggest possible consolidation. The value of the Indian Rupee is impacted by external factors like Crude Oil prices and foreign investments, with the Reserve Bank of India influencing exchange rates. Inflation and interest rates are also important factors.

Volatility and Buying Opportunities

With USD/INR reaching an all-time high, we expect implied volatility to increase in the coming weeks. This makes buying call options an appealing strategy to profit from potential further increases. Traders could consider strikes around 91.50 and 92.00 for the January 2026 expiry to take advantage of the momentum. The absence of a US-India trade deal is a major factor driving this trend, threatening the robust bilateral trade growth that surpassed $200 billion in 2024. Until an agreement is finalized, we see dips in the pair as chances to buy. The market’s concern is warranted, and we should plan on the assumption that no deal is currently the most likely scenario. The outflow of over Rs. 18,400 crore from Indian equities this month is a serious warning. This selling level resembles the significant outflows seen during the Fed’s aggressive tightening cycle in 2022, indicating that the Rupee’s weakness reflects broader worries about the Indian market and not just currency movements. In the US, the market is expecting a ‘higher for longer’ approach from the Fed, even with their recent rate cuts. The forthcoming Nonfarm Payrolls data is crucial; a strong figure would bolster the dollar’s strength and likely push USD/INR higher. With an average of 215,000 jobs added monthly in the second half of 2025, any number above 200,000 would be very positive for the dollar. We are also closely watching India’s upcoming inflation data, as a higher-than-expected CPI could limit the Reserve Bank of India’s ability to promote growth. With core inflation staying above 5% for most of 2025, the RBI may choose to let the Rupee weaken instead of cutting interest rates. This makes any potential central bank intervention to limit the pair’s rise more difficult. Considering the strong uptrend indicated by the 20-day moving average, we plan to use any pullbacks towards the 89.80-90.00 level to enter long positions. However, we must be cautious about strong interventions from the RBI, which has historically stepped in to defend key levels, such as when the Rupee first approached 83 in 2022. Selling some out-of-the-money calls could be a way to protect against a sudden market turnaround. Create your live VT Markets account and start trading now.

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