RBI's Exchange Rate Support Policy Keeps USD/INR Pair in Check Near 90.80

Policy Intervention Sustains Rupee Amid Foreign Investment Uncertainty

The USD/INR currency pair remains relatively steady around the 90.80 level as market participants anticipate continued intervention from India’s central bank. Traders assess a substantial likelihood that the Reserve Bank of India will deploy additional support measures to defend the Indian Rupee, following aggressive dollar sales executed across both spot and non-deliverable forward channels on Wednesday, when the pair had surged to 91.55—marking record territory.

The immediate backdrop involves persistent capital outflows from Indian equities, driven by the broader US-India trade tensions. Foreign Institutional Investors have maintained a net selling posture throughout most of the month; however, a reversal materialized on Wednesday with net purchases totaling Rs. 1,171.71 crore. This sudden shift in FII positioning, while potentially supportive for near-term sentiment, faces headwinds without a concrete resolution to bilateral trade negotiations.

Technical Setup: Momentum Intact but Consolidation Emerging

From a technical perspective, USD/INR trades at 90.7840 on the daily timeframe, maintaining its position above the 20-day exponential moving average located at 90.2106. The persistence of this uptrend-supporting level indicates that bulls retain command of the directional bias, with the moving average slope remaining constructive and containing any pullback attempts.

Momentum indicators paint a balanced picture of current strength. The Relative Strength Index stands at 63.40, situated comfortably within bullish territory after retreating from overbought extremes. This configuration suggests robust buying interest without excessive froth. Should the RSI continue grinding higher into the 65-70 band, trend extension becomes the base case scenario. Conversely, any reversal back toward the 50 midpoint would signal fading momentum and heighten the risk of mean reversion.

The critical support zone anchors around the 20-day EMA itself. A decisive daily close beneath this level would neutralize the uptrend structure and potentially trigger deeper corrective moves toward prior resistance zones. Until such a breach occurs, dip-buying remains the favored tactical approach for bulls.

Dollar Dynamics: Rate Expectations Shift Amid Leadership Transitions

The USD/INR pair’s contained movement also reflects concurrent sideways action in the broader US Dollar. The Dollar Index, measuring Greenback performance against six major counterparts, hovers marginally higher near 98.45, lacking conviction either direction.

Recent Federal Reserve positioning has turned incrementally supportive for the currency. Market participants have reassessed rate-cut probabilities following comments from Fed Chair Jerome Powell during the latest policy decision, wherein he characterized the “bar for another interest rate cut is very high.” According to CME FedWatch calculations, the probability of a 25 basis point reduction in January has compressed to just 24.4%—a meaningful decline from prior expectations.

However, uncertainty regarding Fed leadership succession clouds the medium-term Dollar outlook. Incoming Fed Chair signals suggest a possible orientation toward more accommodative policy, potentially aligned with incoming administration preferences for lower rates. Recent statements from US President Trump underscored this bias, explicitly mentioning “someone who believes in lower interest rates, by a lot” during chairman selection. Such a policy pivot would pressure the Dollar and potentially support carry-trade flows into higher-yielding emerging market assets.

Immediately ahead, markets will digest the November US Consumer Price Index reading at 13:30 GMT on Thursday. Both headline and core inflation measures are forecast to expand at a 3% annualized pace, with potential for upside surprises. This data release could recalibrate near-term rate expectations and inject fresh volatility into currency pairs, including USD/INR.

Rupee Sensitivity: Multi-Factor Framework for Exchange Rate Moves

The Indian Rupee demonstrates pronounced sensitivity to a constellation of external variables, making currency movements complex and often non-linear. Crude oil pricing exerts outsized influence given India’s substantial import dependence, with barrel weakness generally supporting the currency. Similarly, the US Dollar trajectory shapes trade flows since most international commerce settles in greenback denomination.

Foreign investment capital flows represent another critical pillar. Periods of risk-on sentiment typically attract FDI and FII inflows, providing structural support for the Rupee. Conversely, geopolitical tensions or domestic policy uncertainties redirect flows overseas, pressuring the currency lower.

The RBI’s exchange rate management policy combines active market intervention with interest rate adjustments. Higher rates incentivize international investors to deploy capital in Indian fixed income, exploiting carry-trade opportunities between lower-yielding developed economies and India’s relatively elevated yield environment. Real interest rates—the nominal rate adjusted for inflation—matter especially; higher real returns attract sustained foreign demand.

Macroeconomic fundamentals round out the framework. Robust GDP expansion attracts overseas investment, mechanically lifting Rupee demand. Similarly, trade balance improvement reduces the supply of Rupees required to purchase imports, supporting the currency. Inflation dynamics cut both ways: elevated price growth pressures the currency through export uncompetitiveness and increased import demand, yet simultaneously may prompt RBI rate increases that prove currency-supportive through yield channel effects.