Expectations For US Interest Rate Cuts
Technical analysis shows USD/INR trading at 90.2085, staying above the 20-day EMA. The broader uptrend is still supported, and the RSI at 53 indicates momentum has cooled.
The US Dollar is the US’s official currency and accounts for over 88% of global foreign exchange turnover. Federal Reserve’s decisions and Quantitative Easing or Tightening significantly impact its value.
Given today’s date, we see a tug-of-war in the USD/INR pair, which creates opportunities for derivative traders in the quiet holiday weeks ahead. Foreign Institutional Investors (FIIs) are aggressively selling Indian stocks, putting upward pressure on the pair towards 90.20. This is happening even as the broader US Dollar is weak due to expectations of Federal Reserve rate cuts in 2026.
The Scale Of FII Selling
The scale of the FII selling is significant and should not be underestimated. This month alone, they have sold shares worth over Rs. 22,109 crore, adding to a net outflow of over $15 billion from Indian equities for the year 2025. Looking back, we remember similar periods of sustained FII selling in 2022, which consistently pushed the rupee to new lows despite central bank efforts.
On the other side, the US Dollar Index is at an 11-week low near 97.75, a sharp contrast to the highs above 106 we saw earlier in the year. This weakness is driven by markets pricing in at least two interest rate cuts from the US Federal Reserve for 2026, a view that has held firm despite strong US Q3 GDP growth of 4.3%. This global backdrop suggests that any major rally in the USD/INR will face significant headwinds.
The Reserve Bank of India’s actions are also a key factor for options traders. The recent intervention in the spot market and the announcement of a $10 billion buy-sell swap have successfully brought down forward premiums. This signals the RBI’s strong intent to curb excessive volatility and may cap the upside, making it attractive to consider selling out-of-the-money call options for the January expiry.
With market liquidity expected to be thin between Christmas and the New Year, any unexpected news could cause sharp price swings. Therefore, traders might consider strategies that profit from a rise in volatility, such as a long straddle, heading into January. This approach allows one to capitalize on a significant move in either direction once full market participation resumes.
