RBI Holds the Line: USD/INR Stabilizes Amid Central Bank's Strategic Forex Defense

The Indian Rupee remained steady against the US Dollar on Thursday, with the USD/INR pair holding its ground near 90.80 following aggressive intervention by India’s monetary authority. The Reserve Bank of India (RBI) demonstrated renewed determination to stem the currency’s depreciation, executing substantial Dollar sales across both spot and forward markets to cap the previous day’s surge that had pushed rates to a record 91.55.

Why the RBI’s Intervention Matters Right Now

The central bank’s move reflects growing concern over the Rupee’s persistent weakness against the greenback. This weakness stems from a structural challenge: international fund managers have been systematically reducing their exposure to Indian equities amid trade tensions between New Delhi and Washington. The situation underscores how currency markets remain deeply intertwined with broader geopolitical and trade dynamics, much like how investors track emerging asset price movements in INR-denominated markets, including speculative segments like memecoin valuations in Indian currency terms.

What caught market observers by surprise was a sudden reversal in foreign capital flows. After consistently selling Indian shares throughout the month, Foreign Institutional Investors (FIIs) unexpectedly became net purchasers on Wednesday, acquiring approximately Rs. 1,171.71 crore worth of shares. This reversal could signal a temporary thaw in sentiment, though traders remain cautious about sustained recovery without concrete progress on US-India trade negotiations.

The Dollar’s Ambiguous Posture

The stability in USD/INR also reflects conflicting currents in the broader Dollar market. The US Dollar Index (DXY)—which gauges the currency’s strength relative to a basket of six major counterparts—edged slightly higher to around 98.45, but momentum appeared constrained rather than commanding.

The Fed’s interest rate trajectory has become the focal point of currency market dynamics. With the probability of a 25 basis point rate cut in January 2026 standing at just 24.4% according to CME FedWatch data, traders have pared back bets on immediate monetary easing. Federal Reserve Chair Jerome Powell’s recent commentary that “the bar for rate cuts is very high” has reinforced expectations of a prolonged pause.

However, a new variable has entered the equation: the anticipated leadership transition at the Federal Reserve. Market participants are pricing in the possibility that Powell’s successor may adopt a more accommodative stance aligned with the incoming administration’s preference for lower rates. President Trump’s recent statement that his Fed appointee would “believe in lower interest rates, by a lot” introduces uncertainty that could ultimately weigh on the Dollar’s medium-term prospects.

Eyes on November CPI Data

Thursday’s economic calendar pivots on the release of the US Consumer Price Index (CPI) for November at 13:30 GMT. Consensus expectations point to both headline and core inflation holding steady at a 3% annualized pace. This data release will serve as a crucial barometer for how markets recalibrate expectations around Federal Reserve policy and, by extension, currency valuations including the INR’s position relative to the Dollar.

Technical Landscape: Support Holds, Breakout Stalls

From a charting perspective, USD/INR maintains a bullish framework despite losing momentum. The pair trades at 90.7840, comfortably above its 20-day exponential moving average (EMA) positioned at 90.2106. The EMA’s continued upward slope provides a foundation that has absorbed pullbacks, preserving the broader uptrend.

The Relative Strength Index (RSI) stands at 63.40, inhabiting bullish territory after retreating from overbought extremes. This configuration—moderate bullish momentum without excessive froth—supports the potential for further gains if the technical structure remains intact. Should the pair sustain closes above the 20-day EMA, dips would likely find demand in that region.

However, a decisive break beneath the moving average would shift the bias toward neutrality and invite deeper retracement. An RSI reversal toward 50 would similarly suggest weakening impulse behind the upside.

The Bigger Picture: What Shapes the Rupee

The Indian Rupee’s value operates within a complex framework of interconnected variables. External commodity prices, particularly crude oil to which India has significant import exposure, set the tone. Simultaneously, the flow of foreign investment—both direct investment (FDI) and portfolio flows (FII)—exerts constant pressure on supply and demand for Rupees. The Reserve Bank’s discretionary interventions provide a stabilizing mechanism, while interest rate policy influences capital attraction through return considerations.

Macroeconomic fundamentals reinforce these dynamics. Growth differentials, inflation divergence, and trade balance performance all feed into long-term currency trajectories. An economy expanding faster than peers typically attracts capital inflows and strengthens its currency, while elevated inflation—particularly if exceeding regional comparators—depreciates purchasing power and undermines currency strength.

The paradox surfaces when inflation itself prompts central bank action: higher inflation often triggers rate hikes aimed at price stability, and those elevated yields can paradoxically attract foreign capital seeking return enhancement. This complexity means that simple generalizations about currency direction frequently prove insufficient.

For now, the USD/INR pair finds itself in a holding pattern, anchored by RBI vigilance above and constrained by Dollar uncertainty below. Resolution will likely await clearer signals from either trade negotiations or monetary policy clarification.