Insights 
VT 
The Indian Rupee struggled against the US Dollar during early Tuesday trading but later stabilised around 88.40 INR/USD. This was despite pressure from rising oil prices, with West Texas Intermediate Crude Oil holding at $61.50 due to new sanctions by the EU and the US against Russian oil firms.
Countries like India, which rely on oil imports, face challenges with rising oil prices, affecting their currencies. Furthermore, the Indian Rupee is under pressure due to lower foreign trade activity in Indian stocks and recent US tariff hikes on Indian imports.
The US Dollar and Currency Market Dynamics
The US Dollar dipped as traders anticipated a Federal Reserve interest rate cut of 25 basis points, following concerns over job market conditions and moderate inflation growth. The Dollar Index currently trades 0.15% lower around 98.60, with the US CPI report indicating a slow inflation increase.
Negotiations between the US and India have progressed, which might soon fortify the Indian Rupee. Meanwhile, upcoming US-China trade discussions could further influence market dynamics.
Technically, the USD/INR pair eased to around 88.40, with 87.07 acting as a key support level, and 89.12 as resistance. The Indian economy’s 6.13% growth since 2006 influences the Rupee, which is also affected by oil prices, inflation, and seasonal US Dollar demands.
The Indian Rupee is caught between two powerful forces right now, holding steady around 88.40 against the US Dollar. On one hand, the firm expectation of a Federal Reserve interest rate cut this Wednesday is weakening the Dollar. On the other, rising oil prices and lower investment inflows are putting pressure on the Rupee.
Given this conflict, traders should prepare for a spike in volatility rather than betting on a single direction in the coming days. The upcoming Fed announcement is a major event, and any surprise in the forward guidance could cause a sharp move in the USD/INR pair. Options strategies like a long straddle could be effective, as they profit from a large price swing regardless of the direction.
Foreign Investor Activity and Its Impact on the Rupee
We’ve seen that Foreign Institutional Investor (FII) activity has been notably quiet, which is a key concern for the Rupee’s strength. Recent data from the National Securities Depository Limited (NSDL) shows net FII outflows of approximately $1.2 billion in the first three weeks of October 2025. This is a sharp reversal from the nearly $4 billion in net inflows we saw during the second quarter, indicating a cautious stance from overseas investors.
Rising oil prices are a constant headwind for the Rupee, as India relies heavily on energy imports. With WTI crude holding around $61.50, the pressure on India’s import bill is increasing, which we’ve seen in the past when oil spiked after the geopolitical events of 2022. India’s Petroleum Planning and Analysis Cell (PPAC) recently reported that the country’s crude import bill for the last quarter was up 8% year-on-year, directly impacting the demand for US Dollars.
The market has almost fully priced in the upcoming Fed decision, with the CME FedWatch Tool now indicating a 92% probability of a 25-basis-point cut this Wednesday. Therefore, the actual rate cut itself may not move the market significantly. The crucial element for traders will be the Fed’s commentary on future policy, as any hint of further cuts in December will likely send the Dollar lower.
The primary wildcard for the Rupee in the coming weeks will be the final outcome of the US-India trade negotiations. A successful deal would be a major positive catalyst, potentially strengthening the Rupee and pushing the USD/INR pair back towards the August low of 87.07. Conversely, if the talks stall, the negative sentiment could push the pair to re-test its all-time high near 89.12.
However, we should not discount the Reserve Bank of India’s (RBI) ability to manage extreme volatility. The RBI’s latest figures show foreign exchange reserves holding steady around $650 billion, providing it with substantial firepower to intervene in the market. This suggests that while a move higher in USD/INR is possible, the central bank is well-equipped to prevent a disorderly depreciation of the Rupee.
