The Indian Rupee staged a powerful comeback in early Wednesday trading, clawing back significant ground after the Reserve Bank of India (RBI) aggressively sold US Dollars in the market. This move provided much-needed support to the national currency, which had closed at a record low just a day earlier.
RBI Action Spurs Sharp Recovery, But Structural Concerns Linger
The currency appreciated by over one per cent, its strongest single-day gain since May 23, to reach 90.0963 against the US Dollar. However, foreign exchange market specialists quickly tempered optimism, stating that this pullback is unlikely to be enough for the Rupee to shed its unwanted title as the weakest currency in Asia. They emphasize that the RBI's intervention has its limits and cannot single-handedly prop up the Rupee indefinitely.
Experts pinpoint the sustained withdrawal of funds by Foreign Institutional Investors (FIIs) as a primary reason for the Rupee's prolonged weakness. A meaningful reversal of this trend, they argue, is contingent upon a permanent resolution in the trade relations between India and the United States.
What's Dragging the Indian Rupee Down?
Anindya Banerjee, Head of Currency & Commodity Research at Kotak Securities, explained the triggers behind the Rupee's 6% year-to-date decline. He cited three core pressures: sentiment, capital flows, and the global macro backdrop. The Rupee had breached the 91 mark on Tuesday, hitting a fresh all-time low.
"On sentiment, uncertainty around the pending India–US trade deal and the broader trade-war environment is weighing on markets," Banerjee said. He highlighted a severe flow problem, noting that foreign portfolio investors pulled out nearly USD 2.7 billion in just the first two weeks of December, marking one of the largest monthly outflows this year.
Echoing this, Sandeep Pandey, Co-founder of Basav Capital, identified FII selling as the major reason for the Rupee's sharp fall. "They have been selling in the Indian market since July 2025, when Trump's tariffs began to impact Indian businesses in the US market. This tariff still exists," Pandey stated. He believes fundamentals will only improve once this tariff issue is permanently settled.
Near-Term Technical Outlook and Long-Term Dependencies
Discussing the immediate trajectory, Anindya Banerjee noted that the 90 level is a key support, while 91.25 is an important resistance. A sustained break above could open the path towards 92. He suggested the RBI's limited intervention so far might be deliberate, as policymakers could be comfortable with some depreciation to boost export competitiveness in a fraught global trade environment.
Ponmudi R, CEO of Enrich Money, provided a technical perspective, noting the USD/INR pair has been trading in a rising wedge for over a decade. "At current levels, USD/INR is positioned in the upper half of its long-term rising structure, indicating trend continuation," he said. He identified 88.00–86.50 as a crucial support zone and 91.00–92.00 as a key resistance range. A break above could target 94.00–96.00.
Looking ahead, Sandeep Pandey linked the Rupee's fate to the India-US trade deal, expecting a possible outcome by the end of March 2026 (FY26). "Even if the deal is inked in the first quarter of CY26, its impact on the national economy will be felt in the next one to two quarters. So, the Indian Rupee is expected to remain volatile in FY26," he concluded.
Key Takeaways:
- The RBI's dollar sales provided temporary relief, but the Rupee's long-term recovery is uncertain.
- Massive FII outflows, driven by India-US trade tensions, are a critical factor in the currency's decline.
- The resolution of the pending India-US trade deal is seen as a pivotal event for stabilizing investor sentiment and the Rupee.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies. We advise investors to check with certified experts before making any investment decisions.
