The Indian rupee has experienced pressure in 2025 due to global uncertainty and rising import costs. Increased oil prices and diminished foreign investment have also weakened the currency. The Reserve Bank of India has allowed more market-driven movement, leading the rupee to near 91 against the U.S. dollar. This decline has increased costs for imports, stressing inflation. While exporters gain, consumers and businesses reliant on foreign parts face higher expenses.

In 2026, the rupee is expected to remain under pressure. High global interest rates could lead to continued foreign capital outflow. Nonetheless, strong service exports and digital growth might slow the decline. The RBI is likely to act cautiously to prevent sharp fluctuations. Increased manufacturing and controlled inflation might stabilise the rupee by year-end. Global oil prices and trade agreements remain critical factors affecting the rupee’s performance in the coming months.

Technical Analysis Outlook

Technical analysis indicates a continued rise in USDINR as wave ((v)) approaches a target between 89.06 and 90.72. The rupee is nearing a resistance zone, suggesting a potential end to wave 3 and the start of wave 4. Wave 4 is predicted to retest support before resuming a bullish trend in wave 5, confirming a long-term positive outlook for USDINR.

Given the rupee’s steady decline towards 91 against the dollar, we see that fundamental pressures remain strong. India’s September 2025 consumer price index came in at 6.1%, staying well above the Reserve Bank of India’s comfort zone and fueling inflation concerns. This situation is worsened by Brent crude prices holding above $95 per barrel since August 2025, which directly impacts our import bill.

The technical analysis suggests we are approaching a temporary peak, which could mark the end of a major upward wave. For derivative traders, this indicates a potential for a short-term reversal or pullback in the USD/INR pair in the coming weeks. We believe this presents an opportunity for a counter-trend strategy as the dollar’s momentum is expected to pause.

Trading Strategies and Market Outlook

Traders could consider positions that profit from a temporarily strengthening rupee, such as buying near-term Indian rupee (INR) call options or U.S. dollar (USD) put options. The analysis points to a corrective wave 4 that could retest support levels seen earlier this year around the 84-85 range. This provides a clear, albeit temporary, target for such positions.

However, we must remain cautious about a possible extension in the current upward move, which would delay any pullback and push the rupee even weaker. Foreign Portfolio Investors have already pulled over $4 billion from Indian markets in the third quarter of 2025, and any further outflows could fuel such an extension. The long-term forecast still points to a weaker rupee once this expected correction is complete.

The RBI’s current hands-off approach is a significant factor, marking a shift from the heavy interventions we saw back in 2023 to defend the 83 level. This suggests a higher tolerance for currency depreciation to protect foreign exchange reserves. Therefore, any short-term rupee strength should be viewed as a corrective phase within a broader, long-term weakening trend.

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