The Indian Rupee traded flat near Monday’s low, with USD/INR around 90.80 during Tuesday afternoon in India. Demand for US Dollars from importers weighed on the Rupee, while fears of Reserve Bank of India intervention limited moves.
Foreign Institutional Investors were net sellers in February, reducing holdings by Rs. 2,345.69 crore. On Monday, FIIs sold Rs. 972.13 crore of shares.
Markets watched a second round of US-Iran talks in Geneva, with attention on possible effects on oil prices. Higher oil prices can pressure the Rupee because India depends on imported oil.
The US Dollar was steady ahead of US market opening after a long weekend. The US Dollar Index (DXY) was near 97.15.
Traders expected no Federal Reserve rate cut in March or April, based on the CME FedWatch tool. US January inflation eased, with headline at 2.4% and core at 2.5% year on year.
Key US releases this week include FOMC minutes and preliminary Q4 GDP data. The Fed kept rates at 3.50%–3.75% in January.
USD/INR was near 90.9035, just above the 20-day EMA at 90.8822, while the 14-day RSI was 51.19. Levels cited were 90.00 on the downside and 91.25 on the upside.
The USD/INR pair remains caught in a familiar pattern, much like we saw around this time in 2025. Strong dollar demand from importers is providing a floor, while the upside is capped by the persistent threat of Reserve Bank of India intervention. With India’s foreign exchange reserves hitting a record $710 billion in January 2026, the RBI has significant firepower to curb any sharp rupee depreciation.
The outlook for the rupee appears stronger now than it did last year, when foreign institutional investors were net sellers. We saw a significant reversal in the last quarter of 2025, with FIIs turning into net buyers and injecting over $5 billion into Indian equities. This renewed foreign interest is providing underlying support for the INR.
While oil prices remain a key variable, the uncertainty we saw during the US-Iran talks in 2025 has subsided into a period of stability. Brent crude has been trading within a narrow $85-$90 per barrel range, reducing the risk of a sudden spike in import costs that would pressure the rupee. This predictability in energy prices helps contain volatility in the currency.
On the US dollar side, the dynamic has shifted since early 2025 when the Federal Reserve was holding rates steady. The Fed funds rate is now higher at 4.25%-4.50%, but markets are currently pricing in a pause, with less than a 20% chance of another hike in March according to the CME FedWatch tool. This lack of a clear directional bias from the Fed is contributing to the range-bound price action.
For derivative traders, this environment of competing forces suggests that the current consolidation will likely persist in the coming weeks. One-month implied volatility for USD/INR has compressed to a multi-year low of 3.8%, making strategies that sell volatility, such as a short strangle, appear attractive. We should consider this approach to capitalize on the expected lack of significant movement.
