The Indian Rupee (INR) remains broadly unchanged against the US Dollar (USD) at around 90.35, despite the Reserve Bank of India’s (RBI) monetary policy announcement, in which it has left the Repo Rate unchanged at 5.25%, as expected.
The RBI was expected to maintain the status quo as it reduced the Repo Rate by 125 basis points (bps) in 2025, whose impact has yet to be passed on through the economy. The Indian central bank has maintained a “neutral” stance on the monetary policy outlook, citing that India’s economy is in a “good spot” even as global uncertainties remain “elevated”.
Broadly, the Indian Rupee has been outperforming across the board since the confirmation from India and the United States (US) that both will reduce tariffs. On Monday, US President Donald Trump said through a post on Truth Social that tariffs on imports from New Delhi will be lowered to 18%, from 50% prior, and there will be zero tariff charged on exports from Washington to India, which was later acknowledged by Indian Prime Minister (PM) Narendra Modi.
The event led to a sharp increase in the Indian Rupee, strong demand for Indian stocks, and a significant inflow of foreign funds into the Indian equity market. However, the lack of follow-up buying by Foreign Institutional Investors (FIIs) is weighing on market sentiment.
According to data from the National Stock Exchange (NSE), FIIs turned out to be net sellers on Thursday, offloading their stake worth Rs. 2,150.51 crore. On Tuesday, a day after the US-India trade truce, FIIs bought shares worth Rs. 5,236.28 crore.
Daily Digest Market Movers: US employers posted fewer-than-projected fresh jobs in December
- The US Dollar struggles to extend its week-long rally on Friday as prospects of the Federal Reserve (Fed) reducing interest rates have improved, following a string of weak labor market data.
- At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% lower to near 97.85. Still, the DXY is close to its weekly high of 97.98 posted on Thursday.
- The CME FedWatch tool shows that traders see a 22.7% chance that the Fed will cut interest rates by 25 basis points (bps) to 3.25%-3.50% in the March policy meeting, up from 9.4% seen on Wednesday.
- The US JOLTS Job Openings data for December showed on Thursday that employers posted 6.542 million fresh jobs, significantly lower than estimates of 7.2 million and the previous reading of 6.928 million.
- On Wednesday, the ADP reported that the private sector created 22K jobs in January, fewer than 37K in December.
- A majority of Federal Open Market Committee (FOMC) members have been expressing concerns over weak labor market conditions, citing the need for more interest rate cuts to support the same.
- For more cues on the current state of employment, investors will focus on the Nonfarm Payrolls (NFP) data for January, which will be released on Wednesday. The data has been delayed due to a partial federal shutdown, which resumed on Tuesday.
Technical Analysis: USD/INR stays below 20-day EMA
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In the daily chart, USD/INR trades at 90.3790. Price holds beneath the 20-EMA at 90.9282, which slopes lower and caps rebounds. This alignment keeps the short-term bias tilted to the downside. RSI at 42 (neutral) sits below its 50 midline, confirming fading momentum. As long as spot remains under the 20-EMA, rallies could stall and the pair would continue to test lower levels.
Trend signals remain soft, with the 20-EMA turning down in recent sessions and reinforcing persistent supply. RSI continues to slip, now at 42 (neutral), without reaching oversold. A recovery through the 20-EMA at 90.9282 would improve tone and open room for stabilization, while failure to reclaim it would preserve downside risk.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.