The USD/INR pair saw gains on Wednesday, following a slight decline in the prior session. However, the potential for further upside may be capped, as the Indian Rupee (INR) benefits from sustained equity inflows.
Persistent dollar demand from local corporations also caps the Rupee’s gains, highlighting the delicate balance between foreign capital flows and domestic currency demand. The brokers at Taurus Partners provide a comprehensive breakdown of this topic in this article.
According to Reuters, provisional data indicated that foreign investors purchased Indian equities worth ₹694.5 million ($7.67 million) on Tuesday, marking a third straight session of inflows. Market participants also monitored corporate earnings as the December-quarter reporting season neared its close, further influencing sentiment in domestic equity markets.
The INR found support around the 90.70–90.80 zone, a critical level following the announcement of the US–India interim trade framework. Meanwhile, importers continued to drive dollar buying, hedging liabilities, and increasing demand whenever the Rupee strengthened, which moderates sharp USD/INR rallies.
Liquidity Conditions Support the INR
Investor sentiment was further boosted by robust domestic liquidity conditions. The Reserve Bank of India (RBI) injected substantial liquidity into the banking system, pushing the overnight borrowing rate nearly 100 basis points below the policy benchmark. This resulted in the largest liquidity surplus in six months, sustained by government expenditure and ongoing fund infusions.
The RBI opted not to conduct short-term liquidity tightening operations, keeping overnight rates low and maintaining the surplus at around ₹3 trillion. These conditions underpin the Rupee, offsetting some upside pressure from the US Dollar, and providing stability for USD/INR traders.
US Dollar Subdued Ahead of Nonfarm Payrolls
The US Dollar Index (DXY), which tracks the USD against six major currencies, extended losses for the fourth consecutive session, trading near 96.60 at the time of writing. Market participants are awaiting the delayed US Nonfarm Payrolls report scheduled for Wednesday, which is expected to provide clues on the Federal Reserve’s interest rate trajectory.
Markets forecast 70,000 jobs added in January, with the Unemployment Rate projected to remain at 4.4%. Meanwhile, US Retail Sales data indicated flat growth at $735 billion in December, missing expectations for a 0.4% increase. Year-over-year, retail sales rose 2.4%, while total Q4 2025 sales grew 3.0%, reflecting subdued consumer activity.
Fed Policy Outlook
Markets currently expect the Federal Reserve (Fed) to hold interest rates in March, with a first rate cut anticipated in June, possibly followed by another in September. Inflation expectations eased, with the median one-year-ahead measure falling to 3.1% in January, the lowest in six months, while food price expectations remained unchanged at 5.7%.
Federal Reserve officials have signaled a cautious approach to economic policy. San Francisco Fed President Mary Daly highlighted a potential shift from a low-hiring, low-firing environment to no-hiring, higher-firing conditions.
Fed Governor Phillip Jefferson emphasized data-driven decision-making, noting a gradual stabilization of the labor market. Meanwhile, Atlanta Fed President Raphael Bostic warned that inflation remains elevated, underscoring the risk of losing sight of price stability objectives.
US–India Interim Trade Framework Supports INR
A major positive for the Rupee has been the US–India interim trade framework, unveiled last Friday. The agreement includes a reduction of tariffs across industrial and agricultural goods, India committing to purchase more than $500 billion in US products, and enhanced provisions for digital trade, along with deeper economic cooperation.
These developments helped the INR achieve its strongest weekly gain in over three years, reinforcing support for USD/INR traders amid global dollar fluctuations.
Technical Analysis: USD/INR Near Key Levels
USD/INR is currently trading around 90.70. Daily charts indicate a bearish bias, with the pair moving within a descending channel. The 14-day Relative Strength Index (RSI) at 47 suggests neutral-to-bearish momentum following recent overbought conditions.
Initial support is located at the 50-day Exponential Moving Average (EMA) near 90.50. A break below could weaken medium-term momentum, potentially driving the pair toward the channel’s lower boundary around 89.30.
Immediate resistance stands at the nine-day EMA near 90.83. A sustained move above this could target the upper channel boundary at 91.60, followed by the record high of 92.51 reached on January 28.
Conclusion
The USD/INR pair strengthened as the US Dollar pared recent losses, supported by domestic liquidity and the US–India trade agreement. However, the Rupee’s resilience, fueled by equity inflows and importer hedging, may limit further gains. Investors remain focused on Nonfarm Payrolls, Fed policy cues, and technical levels, with support at 90.50 and resistance near 90.83 defining short-term price action.