USD/INR Trades Sideways as Central Bank Support Props Up the Rupee Near 90.80

The Indian Rupee steadies its position against the US Dollar on Thursday, with the USD/INR exchange rate hovering in the 90.80 zone. Market participants are bracing for potential intervention from the Reserve Bank of India (RBI), which has demonstrated its commitment to stabilizing the currency. Traders flagged a “high probability” that the central bank would re-enter the market to manage the pair’s trajectory. On the previous session, the RBI executed significant Dollar sales across both spot and non-deliverable forward markets, effectively capping the rally when USD/INR surged to 91.55—a record level.

Why the Indian Rupee Has Been Under Pressure

The persistent weakness in INR stems from a structural imbalance in foreign investor flows. A prolonged trade dispute between the US and India has triggered consistent capital outflows from the Indian equity market as overseas investors reduce their exposure. However, sentiment shifted notably on Wednesday when Foreign Institutional Investors (FIIs) pivoted from their net-seller position to net buyers, accumulating shares worth Rs. 1,171.71 crore.

This reversal signals a potential shift in risk appetite, though sustainability remains questionable without concrete progress on bilateral trade negotiations. The absence of a breakthrough announcement limits the durability of positive sentiment, keeping market participants cautious about committing fresh capital.

Dollar Index Consolidates Amid Divergent Signals

The sideways momentum in USD/INR mirrors broader consolidation in the US Dollar, with the Dollar Index (DXY) trading marginally higher near 98.45 against a basket of six major currencies. The Greenback has recovered some ground recently as markets recalibrated expectations around Federal Reserve policy.

Rate cut expectations have compressed significantly, with the probability of a 25 basis point reduction in January now priced at just 24.4% according to CME FedWatch data. Fed officials have signaled a cautious stance on additional easing, indicating the bar for further cuts remains elevated. This hawkish tone has provided temporary support to the Dollar.

Looking ahead, the US Consumer Price Index for November—due Thursday at 13:30 GMT—will provide critical inflation data. Both headline and core CPI are expected to hold at around 3% annualized growth, a reading that could reshape interest rate expectations and influence USD/INR direction.

Technical Perspective: Uptrend Intact but Momentum Wavering

On the daily timeframe, USD/INR currently sits at 90.7840, maintaining its position above the 20-day exponential moving average (EMA) at 90.2106. This technical setup preserves the broader upward bias, though the rising slope of the EMA suggests bulls retain the initiative.

The Relative Strength Index (RSI) stands at 63.40, hovering in bullish territory after retreating from overbought extremes. This configuration indicates solid momentum without excessive froth. As long as daily closes remain anchored above the 20-day EMA, buyers are expected to defend dips within that support band.

A decisive breach below the moving average would neutralize the bullish bias and potentially trigger deeper retracement. Conversely, if RSI continues climbing through the mid-60s, the trend extension scenario gains traction. The 91.50 resistance level represents the next barrier for bulls to overcome.

What Drives the Indian Rupee

The Reserve Bank of India employs active intervention strategies in currency markets to maintain exchange rate stability and facilitate cross-border trade flows. The central bank targets a 4% inflation rate through interest rate adjustments, recognizing that higher real rates attract international capital and strengthen the currency through the carry trade mechanism.

Beyond RBI actions, the Rupee responds acutely to crude oil prices—India imports the majority of its petroleum needs—foreign investment inflows, and broad macroeconomic indicators including GDP growth and the trade balance. When overseas investors expand positions in Indian assets, demand for Rupees rises, supporting the currency. Conversely, elevated inflation erodes competitiveness and pressures exporters to sell more Rupees to purchase foreign goods, creating headwinds for the currency in the near term.