The Indian Rupee (INR) remains stable as the US and India unveil a new trade framework aimed at lowering tariffs and strengthening their economic relationship. This agreement is in line with Goldman Sachs’ analysis, which expects US tariffs on Indian imports to decrease from 34% to 20%. Foreign investments in Indian stocks are being closely watched. In February, nearly $900 million worth of Indian equities were bought, showing recovery from January’s $4 billion outflow. At the same time, the US Dollar Index (DXY) has dropped as expectations grow that US interest rates will remain unchanged in March, with potential cuts likely later this year.

USD/INR Shows Bearish Trend

The USD/INR pair is currently bearish, trading around 90.60. The 14-day Relative Strength Index (RSI) suggests that the market is balanced, neither overbought nor oversold. Support is seen at the 50-day Exponential Moving Average (EMA) at 90.48, while resistance is at the 9-day EMA at 90.86. The Indian Rupee’s value is affected by several external factors, including the strength of the US Dollar, foreign investments, and crude oil prices. The Reserve Bank of India (RBI) intervenes in currency markets and adjusts interest rates to maintain the exchange rate and keep inflation around 4%. Many macroeconomic factors like GDP growth and trade balance also influence the Rupee’s value. A year ago, the Indian Rupee saw significant strengthening after the announcement of an interim US-India trade framework. This positive trend was further encouraged by a rebound in foreign investments in Indian equities, reversing the large outflows of January 2025. This created an appealing opportunity for traders looking to capitalize on a stronger Rupee. However, the early 2026 environment is more complex. Foreign investors are less enthusiastic, with foreign portfolio investors (FPIs) withdrawing nearly $1.5 billion from Indian equities this year, according to recent data. Additionally, progress on transforming last year’s interim trade framework into a full agreement has been slower than expected, dampening earlier optimism.

Federal Reserve’s Changed Approach

In contrast to last year when the US Dollar Index hovered around 97.60, the dollar now shows more strength, trading consistently above 103. The Federal Reserve’s stance has also changed, with ongoing inflation pushing expectations for interest rate cuts further into the second half of 2026. This is quite different from the anticipated cuts in mid-2025 from a year ago. This underlying strength in the US dollar presents challenges for the Rupee. Domestically, the Reserve Bank of India maintains a hawkish approach to control inflation, which remains above its 4% target. Though this helps support the INR, it is countered by high crude oil prices, now around $85 a barrel, increasing India’s import costs. Last year, Brent oil was priced closer to $75-$80, putting less strain on the currency. Because of these mixed factors, traders should be careful about making strong directional bets on the USD/INR pair. The supportive stance from a hawkish RBI and the pressure from a strengthening US dollar and cautious foreign sentiment suggest a period of sideways trading and potential volatility. Strategies that take advantage of this uncertainty, like buying straddles or strangles, may be more effective than simply going long or short in the coming weeks. Create your live VT Markets account and start trading now.

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