RBI's 70 Billion Dollar Support Pushes Indian Rupee Higher as USD/INR Breaks Below 90

The Reserve Bank of India’s decisive intervention has triggered a sharp reversal in the USD/INR currency pair, which retreated over 1% to hover near the 90.00 level on Wednesday morning. This pullback marks a significant correction from the pair’s recent peak of 91.56, reflecting aggressive central bank action across both the spot and Non-deliverable Forward (NDF) markets. State-run banking institutions were observed actively offering substantial US Dollar supplies—reportedly coordinated by the RBI—signaling the authorities’ determination to stabilize the domestic currency. This intervention proves timely, as the Indian Rupee has remained the weakest-performing currency across Asia, having depreciated nearly 6.45% year-to-date amid persistent external headwinds.

Why the RBI Felt Compelled to Act

The rupee’s weakness stems from a convergence of structural challenges. Foreign portfolio investors (FIIs) have become net sellers for seven out of the past eleven months, reflecting declining appetite for Indian equities. December alone witnessed FII outflows worth Rs. 23,455.75 crore—a substantial sum that underscores the scale of capital withdrawal. Underlying this portfolio flight is the prolonged trade negotiation stalemate between the United States and India, which has dampened business sentiment and created uncertainty around export competitiveness.

The absence of a finalized trade framework has also intensified demand for US Dollars among Indian importers, amplifying downward pressure on the rupee. RBI Governor Sanjay Malhotra recently acknowledged this complex backdrop, noting that the central bank is carefully monitoring potential macroeconomic spillovers. In remarks to the Financial Times, Malhotra suggested that a resolution to the US-India trade impasse could potentially add as much as 0.5% to India’s overall GDP growth, while simultaneously cautioning that interest rates will “remain low for a longer period” as the RBI balances growth concerns against inflation objectives.

Global Dollar Rebounds Despite Soft US Data

While the RBI stepped in to support the rupee, the US Dollar itself rebounded across global markets on Wednesday, even as domestic US economic data painted a more cautious picture. The Dollar Index (DXY) climbed 0.17% to trade near 98.40, recovering from a fresh eight-week trough reached on Tuesday. This rebound occurred despite a combined October-November Nonfarm Payrolls report that revealed labor market softness: the Unemployment Rate ticked up to 4.6%—the highest level since September 2021—while the economy shed 105,000 jobs in October before recovering 64,000 positions in November.

Beyond employment figures, complementary economic data reinforced the sense of moderating momentum. Retail Sales for October remained flat month-on-month against expectations for 0.1% growth, while the Composite Purchasing Managers’ Index for December slipped to 53.0 from November’s 54.2, suggesting private sector activity growth has moderated. Market observers downplay the likelihood that these figures will meaningfully shift Federal Reserve rate-cut expectations in January 2026, attributing part of the weakness to distortions from the recent government shutdown. The focus will now shift to November’s Consumer Price Index reading, due for release Thursday, which traders will parse for hints about future monetary policy direction.

Technical Setup Favors Further Consolidation

On the daily timeframe, USD/INR trades at 90.5370, maintaining a position above the ascending 20-day Exponential Moving Average (EMA), currently positioned at 90.1278. The Relative Strength Index (RSI) trades at 59.23—above the neutral 50 midline—signaling that positive momentum persists despite a retreat from earlier overbought conditions registered in the 70s range. This configuration suggests the bulls retain some advantage, though the moderating momentum indicator hints that the recent rally has stretched somewhat.

Initial support materialized at the 20-EMA level, holding at 90.1278. A sustained defense of this moving average would preserve the bullish lean and keep the possibility of higher extensions on the table. A broader support cluster exists between 89.9556 and 89.8364—a zone that encompasses the 20-EMA cluster. Should the pair close below this band on a daily basis, the bias would likely shift toward range consolidation or deeper correction. However, as long as buyers maintain bids above this support band, the path remains open for further appreciation.

The Broader Context: What Drives the Rupee?

The Indian Rupee’s sensitivity to external conditions cannot be overstated. Crude Oil prices—critical given India’s reliance on imported petroleum—exchange rate dynamics versus the US Dollar (the dominant currency for international trade settlement), and the magnitude of foreign capital inflows all exert profound influence on the currency. Beyond market forces, direct RBI intervention in foreign exchange markets and the central bank’s interest rate decisions represent policy-level anchors that shape rupee trajectories.

The RBI’s capacity to manage the exchange rate through FX market operations supports trade facilitation and macroeconomic stability. When the central bank raises interest rates, the resulting higher yields attract international carry trade flows—investors borrowing in low-rate jurisdictions to deploy capital in higher-yielding Indian assets—a dynamic that structurally strengthens the currency. Conversely, inflation pressures that outpace regional peers weigh negatively, as they erode competitiveness and prompt businesses to sell rupees to finance foreign purchases.

The rupee’s medium-term trajectory hinges on broader macroeconomic developments: GDP growth trajectory, the balance of trade position, real interest rates (nominal rates adjusted for inflation), and the overall risk appetite environment. A robust growth rate attracts overseas investment and supports rupee demand. A less adverse trade balance similarly benefits the currency. Higher real rates and a risk-on global posture both encourage Foreign Direct and Indirect Investment inflows—both positive for the rupee. The coming weeks will test whether the RBI’s intervention catalyzes a sustained recovery or merely provides a temporary respite amid ongoing structural headwinds.