The Indian Rupee surged against the US Dollar, dropping the USD/INR pair by nearly 0.5% to around 89.80. This increase came as the Reserve Bank of India intervened to curb excessive shifts favouring the USD/INR.
The Reserve Bank of India’s first intervention in 2026 follows multiple actions in December 2025, after USD/INR hit a peak of 91.55. Despite this, tensions in US-India trade and Foreign Institutional Investors’ continuous selling in Indian equities are likely to maintain pressure on the Rupee.
Us India Trade Tensions
US President Donald Trump raised tariffs on India over its stance on purchasing Russian oil, which already faced 50% tariffs, among the highest for US trade partners. Trade tensions impact India’s GDP by roughly 0.3%-0.5%, while influencing sentiment, leading to foreign capital outflows.
In 2025, FIIs divested Rs. 3,06,418.88 crore from Indian equities. In January, net sales slowed down slightly, amounting to Rs. 3,122.68 crore, with Rs. 143.88 crore sold on consecutive days.
Upcoming US data, including ADP Employment Change, ISM Services PMI, and JOLTS Job Openings, will inform Federal Reserve’s policy expectations. The USD/INR pair remains cautious at the psychological level of 90.00, with technical indicators pointing towards further potential declines if momentum doesn’t regain.
Rbi Intervention And Market Implications
We see the Reserve Bank of India’s recent intervention pushing USD/INR below 90.00 as a key signal for the near term. This action, mirroring their efforts in December 2025 when the pair hit 91.55, suggests a strong resistance level is being established by the central bank. Selling out-of-the-money call options with strike prices above 91.00 could be a viable strategy to capitalize on this perceived cap.
However, we should not ignore the underlying pressure on the Rupee from consistent foreign investor outflows, which totaled over Rs. 3 lakh crore in 2025. This, combined with ongoing trade tensions with the US, suggests that the RBI’s support might be temporary. This creates an environment of uncertainty, especially with key US employment data due this week.
The major catalyst will be the US jobs data, particularly Friday’s Nonfarm Payrolls report. Given the Federal Reserve’s three interest rate cuts in 2025 were linked to a softening labor market, any significant surprise in this data will likely cause a sharp move in the US Dollar. Historically, NFP releases that deviate by more than 50K from the consensus have caused an average move of 0.4% in the Dollar Index within the first hour.
Considering these conflicting forces, purchasing volatility ahead of Friday’s data release appears prudent. A long strangle options strategy, involving buying both an out-of-the-money call and put with expirations in the coming weeks, could be positioned to profit from a significant price swing in either direction. This would allow us to benefit whether the US data strongly supports the dollar or confirms its recent weakness.
