Rupee Under Pressure: USD/INR Hits Two-Week Peak Amid Trade Tensions and Oil Concerns

The Currency Crisis Unfolds

The Indian Rupee is experiencing renewed weakness against the US Dollar, with USD/INR touching near 90.50 levels as traders reassess the implications of escalating US trade policies. The latest moves underscore how quickly external shocks—particularly tariff threats—can ripple through currency markets, especially for nations with significant trade imbalances.

The triggers are multifaceted. US tariff threats targeting India have reignited trade friction between Washington and New Delhi, particularly centered on India’s energy sourcing strategies. The administration has signaled willingness to impose additional duties on Indian imports if cooperation on certain geopolitical matters isn’t forthcoming, creating uncertainty for Indian businesses and importers.

This tariff anxiety has compounded into a broader dollar demand surge. Indian importers, facing potential cost increases from tariffs, are scrambling to lock in dollar purchases while the rupee remains weak. Simultaneously, foreign institutional investors have turned cautious, with significant capital outflows from Indian equities recorded in recent weeks. Early 2026 data shows FIIs continuing to pare positions, having withdrawn nearly Rs. 3 trillion in aggregate from Indian markets over the past month.

Geopolitical Spillovers: Beyond the Trade War

The rupee’s weakness isn’t solely about bilateral trade disputes. A broader risk-off sentiment is gripping global markets following recent US military actions and political developments in Latin America. The capture of Venezuelan leadership on drug-related charges, combined with American rhetoric about restructuring Venezuela’s oil industry, has injected fresh uncertainty into commodity and currency markets.

For India specifically, this matters enormously. As one of the world’s largest oil importers—sourcing 85% of energy needs from abroad—any significant supply increase from Venezuelan reserves (estimated at 303 billion barrels) could theoretically ease India’s import bills. However, the immediate impact is a flight to safety, with investors favoring the US Dollar as a hedge.

The Reserve Bank of India has felt compelled to intervene, supporting the rupee through spot market operations and non-deliverable forward transactions. This defensive posturing reflects RBI’s desire to prevent excessive rupee depreciation from destabilizing the broader economy, though such interventions have limits given India’s forex reserves.

Dollar Strength: A Confluence of Factors

The US Dollar Index—tracking the greenback against six major currencies—has climbed 0.35% to trade near 98.80, reflecting broader dollar demand. This strength isn’t mysterious; it’s a classic risk-off pattern where investors rotate toward the safest asset in uncertain times.

The week ahead will test this dynamic further. Key economic data releases from the US, particularly the ISM Manufacturing PMI (expected at 48.3, suggesting continued contraction), and the all-important Nonfarm Payrolls figure for December, will influence rate expectations. Markets are currently pricing in unchanged rates from the Federal Reserve (staying within the 3.50%-3.75% range) through the January 28 announcement.

Technical Picture: USD/INR at Critical Levels

From a technical standpoint, USD/INR trades at 90.4470 with upward momentum intact. The 20-day Exponential Moving Average sits at 90.2130, establishing support below current price action. The 14-day RSI at 56.86 continues rising, confirming that buying pressure remains firm.

Should the pair breach below the 20-EMA, it could trigger a deeper pullback toward December’s lows around 89.50. Conversely, the psychological barrier at the all-time high of 91.55 looms overhead. For traders positioning around the 25 USD to INR conversion rate concept, understanding these technical thresholds helps frame risk parameters.

What’s Next for the Rupee?

The path forward for USD/INR depends on three variables: how far Washington pushes tariff threats, whether geopolitical tensions de-escalate, and the trajectory of Fed policy. A combination of softer US economic data and reduced trade rhetoric could relieve pressure on the rupee. Conversely, further escalation would likely see the pair test the all-time highs again, pressuring Indian policymakers to implement stronger supportive measures.