The Indian Rupee remains stable against the US Dollar, supported by the Reserve Bank of India’s actions in the spot and non-deliverable forward markets. The RBI recently sold US Dollars to stabilise the Rupee, which has decreased by approximately 6.5% against the USD this year.
This decline is partly due to strong USD demand from Indian importers and foreign funds leaving Indian stocks amid US-India trade tensions. Foreign Institutional Investors have sold Indian assets for most of the year, collectively unloading Rs. 19,857.37 crore this month, though recent days have seen net purchases worth Rs. 3,598.38 crore.
Currency Performance Analysis
The Indian Rupee showed varying performance against major currencies over the last seven days, strongest against the Japanese Yen. While the US Dollar struggles at three-week lows against the Rupee, the Federal Reserve is not expected to cut interest rates soon, despite cooling inflation.
Technical indicators suggest the USD/INR pair faces resistance at its 20-day moving average, with potential support around 89.1107. The Indian economy, impacted by growth rates, oil prices, inflation, and USD demand, influences Rupee valuations. Variations in these areas directly affect Rupee strength and investor movements in the markets.
The Indian Rupee is holding near the 90.00 level against the US Dollar primarily due to the Reserve Bank of India’s active intervention. We have seen the RBI’s foreign exchange reserves reportedly decline by over $15 billion in the fourth quarter of 2025, a clear sign of its commitment to supporting the currency. This strong support makes it risky to bet heavily against the Rupee in the immediate short term.
Despite this intervention, we must acknowledge the underlying pressure from foreign fund outflows. Year-to-date data for 2025 shows a net outflow of over $25 billion from Indian equities, the largest withdrawal since the global monetary tightening we witnessed back in 2022. The small amount of buying seen in the last few trading days is insignificant compared to this year-long selling trend.
Impact Of US Policies
Demand for US Dollars from Indian importers also remains a key factor, particularly as India’s trade deficit for November 2025 widened to nearly $30 billion. This persistent dollar demand creates a natural headwind for any Rupee appreciation. Any strength in the Rupee is likely to be met with buying from importers, capping potential gains.
On the US side, the Federal Reserve is not expected to cut interest rates in its January 2026 meeting, providing a solid floor for the US Dollar. The upcoming preliminary Q3 2025 GDP data, expected this Tuesday, is the next major catalyst for us to watch. A stronger-than-expected growth figure could easily reignite the upward trend in the USD/INR pair.
From a trading perspective, the pair is coiled tightly around its 20-day moving average, suggesting a breakout could be coming. We are seeing a notable increase in demand for out-of-the-money call options with strike prices near 91.00 and 91.50 for the January 2026 expiry. This indicates that many market participants are positioning for a move higher in the coming weeks.
Implied volatility for one-month USD/INR options has also ticked up to 5.8% from an average of 4.5% in October, suggesting traders are pricing in larger price movements ahead. This environment could favor strategies that profit from a breakout, as the current period of stability is unlikely to last. We should therefore be prepared for a potential spike in volatility following this week’s US data release.
