INR Rebounds Sharply as RBI Actively Supports Domestic Currency Against USD

The Indian Rupee displayed significant strength Wednesday morning as the Reserve Bank of India orchestrated support measures to stabilize the currency pair. USD/INR retreated sharply, dropping over 1% to hover near the 90.00 mark from its previous peak of 91.56. Market observers noted that state-run banks were actively supplying US Dollars, widely believed to represent RBI’s strategic intervention across both spot and Non-Deliverable Forward (NDF) markets.

This corrective move comes as a relief, given the Rupee’s troubled performance this year, which has seen it decline nearly 6.45% against the US Dollar, making it Asia’s weakest performing currency. The central bank’s decision to intervene reflects growing concerns over the rupiah’s vulnerability amid persistent capital outflows and weakening macroeconomic sentiment.

Understanding the INR’s Weakness: Beyond Today’s Rally

Several structural factors have weighed on the Indian Rupee in recent months. The absence of a concrete trade agreement between the United States and India has kept foreign investors cautious, with Foreign Institutional Investors (FIIs) turning into net sellers throughout most of the year—recording net outflows in seven of the last 11 months. December alone witnessed FII redemptions totaling Rs. 23,455.75 crore from Indian equities, exacerbating selling pressure on the currency equivalent to one billion indian rupees worth of downward pressure.

The ongoing trade tensions have simultaneously boosted demand for US Dollars among Indian importers seeking to hedge their international obligations, further pressuring the rupee. Adding to the complexity, RBI Governor Sanjay Malhotra recently signaled in an interview with Financial Times that policy rates will “remain accommodative for an extended period,” underscoring the central bank’s growth-supportive stance despite currency volatility. Malhotra also acknowledged recent GDP surprises prompted the RBI to reassess its forecasting models, while suggesting potential US-India trade normalization could contribute 0.5% upside to overall GDP growth.

USD Stabilizes Despite Soft Economic Prints

While the Rupee found support Wednesday, the US Dollar itself maintained its recovery trajectory following Tuesday’s rebound. The US Dollar Index (DXY) traded 0.17% higher near 98.40, bouncing back from fresh eight-week lows around 98.00 posted earlier in the week.

This resilience occurred despite another round of disappointing economic data. The combined October-November nonfarm payroll reading showed the unemployment rate climbing to 4.6%—the highest since September 2021—alongside net job losses of 105,000 in October offset by only 64,000 additions in November. Retail sales growth stalled on a month-on-month basis, falling short of the anticipated 0.1% increase, while the preliminary S&P Global Composite PMI contracted to 53.0 from November’s 54.2.

However, market participants believe the Fed will likely maintain its current policy stance through January 2026, with the CME FedWatch tool showing minimal rate-cut probability. The soft data has been partially discounted due to government shutdown distortions. Thursday’s release of November Consumer Price Index data will prove crucial for determining the Fed’s next policy direction and, by extension, the Dollar’s broader trajectory.

Technical Setup: USD/INR Consolidating Above Key Moving Average

From a technical perspective, the USD/INR pair currently trades at 90.5370, maintaining its position above the rising 20-day Exponential Moving Average (EMA) situated at 90.1278. This level preservation signals an intact bullish structure despite recent momentum moderation.

The Relative Strength Index (RSI) stands at 59.23, positioned above the neutral 50 midline and confirming positive directional bias following its pullback from overbought extremes in the 70s. The uptrend remains intact as long as USD/INR defends the 20-EMA cluster support zone spanning 89.9556–89.8364. A sustained break below this zone would suggest consolidation building, whereas holding these levels keeps extension higher firmly in play.

Key Drivers Shaping INR Volatility

The Indian Rupee’s sensitivity to external shocks stems from several fundamental dependencies. As a net petroleum importer, India’s currency responds sharply to crude oil price movements. Most international commerce flows through US Dollar channels, making USD strength inherently negative for the Rupee. Foreign investment levels, whether direct (FDI) or indirect (FII), significantly influence capital flows and exchange rate pressure.

The RBI’s policy toolkit—combining forex market intervention with interest rate adjustments—directly impacts rupee valuations. Higher real interest rates (nominal rates minus inflation) typically attract international capital seeking yield, strengthening the currency. Conversely, elevated inflation raises export costs, necessitating greater rupee sales to fund import obligations. Economic growth expansion, reflected in robust GDP readings, generates demand for rupees from overseas investors, while deteriorating trade balances create structural headwinds requiring policy support.

Currently, the interplay between RBI accommodation, sluggish FII flows, and US Dollar resilience will determine whether today’s corrective rally sustains or proves temporary.