The USD/INR pair moved higher on Wednesday, driven by strong US dollar demand and continued foreign fund outflows, which weighed on the Indian rupee. The pair climbed as investors assessed global economic trends and shifting monetary policy expectations from both the Federal Reserve and the Reserve Bank of India (RBI).
The US dollar remained firm, supported by elevated Treasury yields and expectations that the Federal Reserve will maintain higher interest rates for longer. While markets continue to anticipate eventual rate cuts, persistent US economic resilience has kept the greenback in demand, limiting the rupee’s ability to recover.
At the same time, foreign institutional investors (FIIs) have been reducing their exposure to Indian assets, contributing to the rupee’s weakness. Capital outflows, particularly from equity and bond markets, have increased demand for the US dollar, further pushing USD/INR higher. If this trend continues, the RBI may be forced to intervene to stabilize the currency.
Adding to the pressure, higher oil prices remain a concern for the Indian economy. As a major crude importer, India faces a widening trade deficit when energy costs rise, increasing the demand for dollar reserves and putting further strain on the rupee. Any sustained rally in oil prices could accelerate USD/INR’s upward movement.
Looking ahead, traders are closely watching upcoming US economic data and RBI policy signals for clues on the next move. If the Fed continues to push back against early rate cuts, the dollar could strengthen further, keeping the rupee under pressure. On the domestic front, any signs of RBI intervention or new policy measures could help stabilize the currency.
For now, USD/INR remains on an upward trajectory, with market dynamics favoring the US dollar. Unless global risk sentiment shifts or the RBI takes decisive action, the rupee may continue to face headwinds in the near term.
