The Indian Rupee remains steady at 88.90 against the US Dollar, close to a historic high of 89.12, amidst ongoing trade tensions between the US and India. The tensions have been exacerbated by a 50% tariff on Indian exports to the US, linked to India’s purchase of oil from Russia.

Both nations struggle to agree on trade issues, with Minister Jaishankar noting the lack of consensus without specific details. The US desire for India to open its agriculture and defence markets has historically prevented agreements.

Impact On Stock Market

These tensions have affected the sentiment towards the Indian stock market, with Foreign Institutional Investors selling Rs. 1,29,870.96 crores from July to September. The HSBC Services PMI decreased to 60.9 in September from 62.9 in August.

The US Dollar remains strong, trading 0.35% higher, despite the government shutdown risks in Washington. Speculation of Federal Reserve rate cuts increases amid economic concerns, with an 84% chance of a 25-basis point cut predicted in upcoming meetings.

In currency markets, the USD/INR maintains a bullish trend, supported by a 20-day EMA above 88.60 and the RSI above 60.00. The pair could rise to 90.00 if it breaks past 89.12. Tariffs, a key topic in US trade policy, serve as protectionist measures, differentiated from taxes paid by individuals.

The USD/INR pair is signaling a strong upward trend, making long positions attractive for the coming weeks. We are looking at a potential break above the recent all-time high of 89.12. The primary driver is the unresolved trade friction between the US and India, which shows no signs of easing.

Given the clear upward momentum and the psychological target of 90.00, buying USD/INR call options is a sensible approach. Consider options with strike prices around 89.50 or even 90.00 for November expiry to capture the expected move. This strategy allows us to capitalize on the upside while limiting our risk to the premium paid.

Capital Flight And RBI Intervention

The heavy selling by Foreign Institutional Investors (FIIs) confirms the negative sentiment surrounding Indian assets. After dumping nearly Rs. 1.3 lakh crore in the last quarter, provisional data from the National Securities Depository Limited (NSDL) for the first week of October 2025 already shows an additional outflow of Rs. 4,500 crores. This capital flight puts direct and sustained pressure on the rupee.

We must watch for intervention from the Reserve Bank of India (RBI), which will likely try to slow the rupee’s fall. We’ve seen the RBI stepping in to sell dollars, as their latest data release showed a $2.5 billion decrease in foreign exchange reserves for the week ending October 3rd. While this can cause short-term pullbacks, it is unlikely to reverse the overall trend driven by fundamental trade issues.

Paradoxically, the US government shutdown is strengthening the dollar as a safe-haven currency, keeping the DXY firm near 98.00. The latest estimates from the Congressional Budget Office, released last Friday, project a 0.2% drag on Q4 GDP for every week the shutdown continues. This economic risk increases expectations of Fed rate cuts, but for now, global uncertainty is favoring the dollar.

This situation is reminiscent of the 2022-2023 period when global rate hikes first pushed the rupee past 83 against the dollar, but the current trade-related pressures feel more direct and persistent. The technical indicators, especially the RSI holding above 60, support staying with the bullish momentum. We should use any small dips, possibly towards the 88.60 level, as opportunities to build long positions.

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