USD/INR rose on Wednesday after small losses a day earlier. Gains were limited by equity inflows supporting the Rupee, while ongoing US Dollar demand from Indian firms reduced Rupee strength.
Provisional Reuters data showed foreign buyers purchased Indian equities worth 694.5 million rupees ($7.67 million) on Tuesday, the third day of inflows. December-quarter earnings reports were also in focus as the season neared its end.
Rupee Support And Importer Demand
The Rupee held support near 90.70–90.80 on Tuesday. Importers continued hedging demand, with buying activity increasing when the Rupee strengthened.
Domestic liquidity stayed high after Reserve Bank of India injections pushed the overnight borrowing rate nearly 100 basis points below the policy rate. The liquidity surplus was around INR 3 trillion, the largest in six months, supported by government spending and fund inflows.
The US Dollar Index fell for a fourth session and traded near 96.60. Markets awaited US Nonfarm Payrolls, expected to show 70,000 jobs added in January, with the jobless rate seen at 4.4%.
US Retail Sales were flat at $735 billion in December after a 0.6% rise in November, versus a 0.4% forecast. Year-on-year sales rose 2.4%, and October–December 2025 sales increased 3.0% (±0.4%).
Post Payrolls Dollar Repricing
We have now seen the US employment report that the market was waiting for, and it has shifted the landscape significantly. The January Nonfarm Payrolls came in much stronger than the expected 70,000, posting a gain of 185,000 jobs. Consequently, the US Dollar Index (DXY) has rallied from the 96.60 level to trade around 97.40, reversing its recent weakness.
This surprising strength in the US labor market makes the flat retail sales data from December 2025 look more like a temporary slowdown than the start of a trend. For USD/INR, this means the pressure is now firmly on the upside. We should expect the pair to decisively break the immediate resistance at the nine-day EMA near 90.83 in the coming sessions.
The primary trade in the near term is to position for a stronger US Dollar. We believe buying short-dated USD call options with strike prices around 91.00 and 91.50 is the most direct strategy. This allows us to capitalize on a potential move towards the upper boundary of the descending channel, located near 91.60.
On the Indian side, while equity inflows are providing some support, they are minor in the face of this renewed dollar strength. The large liquidity surplus of around INR 3 trillion, which has kept local rates low, could become a headwind for the Rupee. We are also watching India’s January inflation data, which at 5.5% is still well above the RBI’s 4% target and may force the central bank to act.
Given this, the key support level at the 50-day EMA near 90.50 now seems less likely to be tested. Traders who are bearish on the Rupee should look for a sustained move above 90.83 as a confirmation signal. The record high of 92.51, reached just last month in January, serves as a reminder of how quickly the pair can move when dollar momentum builds.
For those looking to hedge or play a potential reversal, the descending channel structure is still technically intact. Buying USD put options with a strike below 90.50 would be a prudent way to position for a scenario where the US data proves to be an outlier and the pair falls back into its range. However, for now, the path of least resistance appears to be higher for USD/INR.
