RBI Support Lifts Indian Rupee as USD/INR Retreats from Record Highs

The Indian Rupee experienced a robust recovery against the US Dollar during Wednesday’s Asian session, with USD/INR declining sharply over 1% to approximately 90.00 levels. This retreat from the currency pair’s all-time high of 91.56 reflects deliberate intervention by the Reserve Bank of India in both spot and forward markets. Multiple traders reported that state-run financial institutions were aggressively selling US Dollars, operating under likely RBI directives to support the embattled domestic currency.

Why RBI Needed to Act: The Rupee’s Troubled Year

The Indian Rupee has struggled throughout 2024, emerging as Asia’s worst-performing currency against the greenback with a year-to-date decline of nearly 6.45%. This persistent weakness stems from a combination of structural headwinds. The absence of a bilateral trade agreement between India and the United States has triggered a steady outflow of foreign investment from Indian equity markets. Simultaneously, Indian importers facing uncertain trade prospects have increased their demand for US Dollars, further pressuring the Rupee.

Foreign Institutional Investors have painted a particularly grim picture, operating as net sellers in seven out of eleven months this year. The December offloading reached Rs. 23,455.75 crore—equivalent to approximately 12 million in Indian Rupees worth of selling pressure—underscoring the scale of capital flight.

Central Bank’s Cautious Stance on Growth Prospects

RBI Governor Sanjay Malhotra recently signaled that the central bank plans to maintain accommodative monetary conditions for an extended period. In comments to the Financial Times, he acknowledged surprise at recent GDP figures, prompting the RBI to enhance its forecasting models. Notably, Malhotra indicated that a potential US-India trade resolution could contribute as much as 0.5% to overall GDP growth—a substantial upside scenario should trade tensions ease.

Global Dollar Strength Complicates Indian Rupee’s Recovery

Despite the RBI’s supportive intervention, the Indian Rupee faces headwinds from broader US Dollar strength. The USD Index, which measures the greenback’s performance against six major trading partners, climbed 0.17% to 98.40 during Wednesday’s session, rebounding from an eight-week low near 98.00.

Disappointing economic data from the United States contributed to this Dollar recovery. October and November combined Nonfarm Payrolls figures revealed weakness, with the Unemployment Rate rising to 4.6%—the highest level since September 2021. The employment report showed net job losses of 105,000 in October before a modest rebound of 64,000 positions in November. Retail Sales growth stalled month-on-month when 0.1% expansion had been anticipated, while the flash Composite Purchasing Managers’ Index for private sector activity fell to 53.0 from 54.2 previously.

Market analysts note that while this data might normally prompt policy reconsideration, the Federal Reserve is unlikely to shift course due to distortions from government shutdown effects. CME FedWatch probabilities currently show minimal odds of interest rate cuts by January 2026.

Technical Framework: Can the Rupee Hold Ground?

From a technical perspective, USD/INR trades near 90.5370 with the pair maintaining position above its 20-day Exponential Moving Average positioned at 90.1278. The Relative Strength Index at 59.23 sits modestly above the 50 midline, suggesting positive momentum without overbought extremes following recent pullbacks from the 70s range.

The uptrend structure remains intact as long as the pair defends the 20-day EMA support level. A more significant support zone exists between 89.9556 and 89.8364 across the moving-average cluster. Should USD/INR close below this zone on a daily basis, the technical bias would shift toward consolidation rather than sustained appreciation. Conversely, maintaining bids above these support levels would preserve scope for further upside extension.

Macroeconomic Drivers Shaping Currency Dynamics

Multiple factors influence the Indian Rupee’s trajectory beyond immediate market interventions. India’s heavy dependence on imported crude oil means that petroleum prices significantly impact currency valuations. The volume of foreign investment inflows, both direct and indirect, remains crucial, as risk-on environments typically generate capital inflows that strengthen the Rupee.

Interest rate differentials between India and other economies drive the carry trade mechanism—investors borrowing in low-rate jurisdictions to deploy capital in higher-yielding Indian assets profit from this differential, supporting Rupee demand. Inflation levels matter considerably; if Indian price pressures exceed regional peers, the Rupee faces depreciation pressure as devaluation erodes purchasing power. However, elevated inflation typically prompts the RBI to raise policy rates, potentially supporting currency values through increased foreign investor demand for yield.

The broader macroeconomic picture—encompassing GDP growth trajectory, trade balance dynamics, and real interest rates—collectively determines whether the Rupee can sustain its recovery beyond the immediate benefits of RBI intervention.