The embattled Indian rupee roared back to life on Wednesday as the country’s central bank boosted its interventions. The USD/INR exchange rate tumbled from a record high of 91.07 to a low of 90.28, its biggest drop in months. So, will the rupee gains hold?
Indian rupee rebounds amid RBI intervention
The USD/INR exchange rate has been in a strong uptrend this year, making the Indian rupee one of the top laggards in the Asian region.
This surge pauses on Wednesdays as the central bank delivered a strong intervention in which it sold dollars aggressively to halt the slide.
The bank did not make public the size of the ongoing intervention, although some analysts believe that it is in billions of dollars.
India has vast reserves to support a currency intervention when the rupee is in a freefall. The most recent data shows that the country has over $687 billion in foreign reserves.
RBI has hinted that rates to stay low for longer
The RBI has largely intervened in the form of dollar liquidity provision. It has avoided hiking interest rates, which would make the rupee more attractive to locals and foreigners.
Instead, the bank has delivered two interest rate cuts this year, bringing the benchmark rate from 6% in January to 5.25%.
Officials have pointed to the fact that inflation remains low and the economy is doing well. As a result, they hope that rate cuts will help to provide more fuel for economic growth.
The bank has also slashed rates because of the ongoing tensions between the United States and India. India is one of the top countries that has not reached a trade deal with the United States.
As a result, the US has put in place a 50% tariff on goods coming from India, and despite hopes of a deal, nothing has happened so far.
The US also announced a boost in fees of H1-B visas, a move that disproportionately affected India, a country that has a large market share in the industry. That move has affected the Indian economy, including top companies in the industry like Tata Consultancy, Infosys, and Wipro.
Federal Reserve interest rate outlook
The USD/INR exchange rate has reacted mildly to the actions of the Federal Reserve, which dropped interest rates by 0.25% last week. Officials then hinted that they would deliver another rate cut in 2026.
Macro data released this week showing that the labor market remained on edge in October as the economy shed thousands of jobs. It then rebounded in November, creating 64,000 jobs during the month.
Looking ahead, the US will publish the latest inflation report on Thursday. All these numbers, together with those that will be released in January, will provide more hints on what to expect in the coming meetings.
USD/INR analysis: what next for the Indian rupee?
The daily timeframe chart shows that the USD/INR exchange rate has pulled back in the past few days, moving from a high of 91.08 on Tuesday to the current 90.34.
This retreat started when the pair hit the upper side of the ascending channel shown in red.
The pair remains above the 50-day and 100-day Exponential Moving Averages (EMA), which is a bullish sign.
The Relative Strength Index has pointed downwards, while the MACD indicator has continued rising.
Therefore, the pair will likely drop and retest the support at 89.67 and then resume the uptrend. More gains will be confirmed when it moves above the year-to-date high of 91.07. Such a move will push it to the next key resistance level at 92.
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