USD/INR gains at open on consistent FIIs selling, RBI’s dovish policy
- The Indian Rupee slides to near 90.50 against the US Dollar as FIIs continue to offload stake in Indian equity market.
- The RBI cuts its Repo Rate by 25 bps to 5.25%.
- Investors expect the Fed to announce a hawkish cut on Wednesday.
The Indian Rupee (INR) opens on a bearish note against the US Dollar (USD) at the start of the week. The USD/INR pair jumps to near 90.50 as the Indian Rupee continues to underperform due to the continuous outflow of foreign funds from the Indian stock market, and a dovish monetary policy announcement by the Reserve Bank of India (RBI) on Friday.
So far in December, Foreign Institutional Investors (FIIs) have remained net sellers in each trading day, and have offloaded shares worth Rs. 10,403.62 crore. FIIs also remained net sellers in all last five months on a net basis.
Trade frictions between the United States (US) and India have remained a key concern behind FIIs consistent selling in the Indian equity market. Analysts at MUFG have predicted that the Indian Rupee could depreciate further to near 92.00 against the US Dollar, if a US-India bilateral deal doesn’t strike in coming months.
On Friday, the RBI cut its Repo Rate by 25 basis points (bps) to 5.25%, as expected, and announced Open Market Operations worth Rs. 1 lakh crore and a three-year USD/INR swap of $5 billion. The RBI assured that both the headline and the core Consumer Price Index (CPI) could rise to 4% in Financial Year (FY) 2026-27. Taking strong cues from the Q3 Gross Domestic Product (GDP) data, the RBI has raised growth projections for the current fiscal year to 7.3% from 6.8%.
This week, investors will focus on the retail CPI data for November, which will be released on Friday. Inflation at the retail level grew by 0.25% in October on an annualized basis.
Daily digest market movers: Investors await Fed’s monetary policy announcement
- The Indian Rupee trades lower against the US Dollar on Monday, even as the latter trades with caution ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
- At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to hold its over five-week low of 98.75 posted on Thursday.
- According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 87%.
- The odds of a December interest rate cut are high due to soft job market conditions. The major catalyst behind the recent surge in Fed dovish expectations was support for easing monetary conditions by New York Fed Bank President John Williams in late-November.
- As traders are confident of a Fed interest rate cut on Wednesday, the major trigger for the US Dollar’s outlook will be monetary policy guidance for 2026. It is likely that the Fed will call for a pause in the monetary-easing cycle as inflationary pressures have remained well above the 2% target for a longer period.
- Investors will also focus on the Fed’s dot plot, which shows where policymakers see Federal Funds Rate heading in the medium and longer term.
- Market participants would also like to know the current status of the labor market and inflation amid an absence of latest Nonfarm Payrolls (NFP) and the inflation data.
Technical Analysis: USD/INR sees more upside above 90.70
USD/INR trades at 90.50 as of writing. The 20-day Exponential Moving Average (EMA) is rising and the pair holds above it, reinforcing a bullish short-term trend.
The 14-day Relative Strength Index (RSI) at 70.61 is overbought, pointing to stretched momentum. Initial support sits at the 20-day EMA at 89.54, while a clean break of all-time highs around 90.70 would open the door to further gains.
With price action tracking above a rising average, dip-buying remains favored in the near term. A pause or mild pullback could relieve overbought conditions without damaging the broader advance. Should the daily close slip beneath the 20-day EMA, the bias would shift toward consolidation; maintaining the current stance would keep the upside path in play.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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