The Indian Rupee has fallen near 90.86 against the US Dollar due to uncertainty over a US-India trade deal. Foreign Institutional Investors have been net sellers throughout December, selling stakes worth Rs. 18,491.29 crore.
The Rupee’s decline is tied to the lack of outcomes from meetings between US Trade Representative Rick Switzer and Indian negotiators. Speculators wait for India’s retail CPI and US NFP data for November for additional insights.
Us Dollar Outperformance
The USD/INR pair has reached a high of 90.86, with the US Dollar outperforming the Indian Rupee. Meanwhile, the US Dollar Index strives to regain ground after posting a fresh seven-week low of 98.13.
The US Federal Reserve has indicated a Fed Funds Rate of 3.4% by 2026, with only one rate cut anticipated next year. Market reaction remains focused on the upcoming US Nonfarm Payrolls data for further monetary policy cues.
The USD/INR stands at 90.6885, with a 20-day EMA of 89.8183 guiding the trend. A break above 90.86 could lead to advances to 92.00, while RSI readings close to 70 suggest possible consolidation.
The Indian Rupee’s value is influenced by external factors like Crude Oil prices and foreign investment, with interventions from the Reserve Bank of India affecting exchange rates. Inflation and interest rates are key.
Volatility And Buying Opportunities
With USD/INR breaking its all-time high, we should expect implied volatility to rise in the coming weeks. This makes buying call options an attractive strategy to capture further upside potential. Traders could look at strikes around 91.50 and 92.00 for the January 2026 expiry to position for continued momentum.
The lack of a US-India trade deal is the primary driver behind this move, putting at risk the strong bilateral trade growth we saw through 2024, which topped $200 billion. Until an agreement is signed, we see any dips in the pair as buying opportunities. The market’s anxiety is justified, and we should trade on the assumption that no deal is the base case for now.
Foreign investors pulling over Rs. 18,400 crore from Indian equities this month is a significant warning sign. This level of selling is reminiscent of the large outflows we witnessed during the Fed’s aggressive tightening cycle back in 2022. This suggests the weakness in the Rupee reflects broader concerns about the Indian market, not just a currency fluctuation.
On the US side, the market is pricing in a ‘higher for longer’ stance from the Fed, even with their recent rate cuts. The upcoming Nonfarm Payrolls data is therefore critical; a strong number would reinforce the dollar’s strength and likely push USD/INR higher. After seeing an average of 215,000 jobs added per month in the second half of 2025, a figure above 200,000 would be very bullish for the dollar.
We are also watching India’s upcoming inflation data closely, as a higher-than-expected CPI reading would limit the Reserve Bank of India’s ability to support growth. With core inflation persisting above 5% for most of 2025, the RBI may be forced to let the Rupee weaken rather than cut interest rates. This situation complicates any potential central bank intervention to cap the pair’s rise.
Given the strong uptrend confirmed by the 20-day moving average, our strategy is to use any pullbacks toward the 89.80-90.00 level to initiate long positions. However, we must remain cautious about aggressive intervention from the RBI, which has historically stepped in to defend psychological levels as it did when the Rupee approached 83 for the first time in 2022. Selling some out-of-the-money calls could be a way to hedge against a sudden reversal.
