The Indian Rupee drops to nearly 90.50 against the US Dollar as Foreign Institutional Investors offload Rs. 10,403.62 crore of Indian shares in December. The Reserve Bank of India cuts its Repo Rate by 25 basis points to 5.25% and announces significant market operations.
Ongoing trade tensions between the United States and India contribute to the persistent selling by FIIs in the Indian market. Analysts suggest the Rupee might weaken further to around 92.00 if a US-India deal isn’t reached soon.
RBI Growth Projections
The RBI projects growth at 7.3% for the current fiscal year, adjusting its forecasts upward from 6.8% due to positive GDP data. The central bank also predicts the Consumer Price Index could hit 4% by Financial Year 2026-27.
Ahead of the Federal Reserve’s policy announcement, the USD/INR pair remains around 90.50, holding above the 20-day Exponential Moving Average. The Fed’s upcoming decision could impact USD strength, with expectations of a 25 bps rate cut due to soft job market conditions.
In currency movements, the Indian Rupee shows the largest percentage decline against the Euro, while USD experiences moderated losses against multiple currencies. Market focus remains on the Fed’s guidance for future monetary policy.
Given the Rupee’s slide towards 90.50 against the dollar, we see a clear trend driven by fundamental factors. The Reserve Bank of India’s recent rate cut to 5.25% contrasts sharply with the expected “hawkish cut” from the US Federal Reserve. This growing difference in interest rate policy makes holding US dollars more attractive than the Rupee.
FII Selling Pressure
The relentless selling from Foreign Institutional Investors, who have offloaded over Rs. 10,400 crore in shares this month alone, is adding significant pressure. This level of sustained outflow is substantial; for context, total FII outflows in the calendar year 2022 reached a record of nearly Rs. 1.21 lakh crore, a period which also saw significant Rupee depreciation. The current momentum suggests a similar sentiment is taking hold.
With the Federal Reserve’s policy decision due on Wednesday, implied volatility in USD/INR options is likely to rise. While an interest rate cut to 3.75% is almost fully priced in, the real market mover will be the Fed’s guidance for 2026 in its dot plot. A hawkish tone, signaling a pause in easing, would further strengthen the case for a higher USD/INR.
Therefore, we believe traders should consider buying USD/INR call options to profit from further Rupee weakness. A call option provides the right to buy the pair at a set price, offering upside potential with a defined risk limited to the premium paid. This strategy is prudent given the overbought RSI at 70.61, which signals the possibility of a short-term pause or pullback before the next leg up.
For those wanting a more cost-effective strategy, a bull call spread would be appropriate. This involves buying a call option at a lower strike price, like 90.50, and simultaneously selling another call at a higher strike, perhaps 92.00. This approach reduces the initial cash outlay but caps the maximum potential profit.
Technically, the pair remains in a strong uptrend above its 20-day moving average, currently serving as support around 89.54. A decisive break above the all-time high near 90.70 would be a strong bullish confirmation. We will be watching the upcoming Indian retail inflation data on Friday, but the central bank divergence is the dominant theme for now.
