RBI Steps In: USD/INR Plunges Below 90.00 as Central Bank Defends Rupee

The Reserve Bank of India (RBI) has made a decisive show of force in currency markets, triggering a sharp reversal in the USD/INR pair. On Wednesday’s opening session, the currency pair crashed over 1% to hover near 90.00, wiping out gains that had pushed it toward the all-time high of 91.56. State-run banks, acting as the RBI’s execution arm, were spotted aggressively selling US Dollars in both the spot and Non-Deliverable Forward (NDF) markets—a classic playbook when the central bank wants to stabilize a weakening domestic currency without making formal policy announcements.

Why the Rupee Needed Defending

The Indian Rupee had become a punching bag for currency traders. Down nearly 6.45% year-to-date, it ranks as Asia’s worst performer against the US Dollar. The culprit? A toxic combination of factors that have hammered demand for the currency. Foreign Institutional Investors (FIIs) have fled Indian equities for seven out of eleven months this year, offloading positions worth Rs. 23,455.75 crore in December alone. Meanwhile, the stalled US-India trade negotiations have left importers desperate for US Dollars, draining the Rupee’s strength further.

RBI Governor Sanjay Malhotra attempted to sound reassuring in a recent Financial Times interview, signaling that interest rates will “remain low for a longer period.” Yet he acknowledged the surprise factor in recent GDP figures, noting the central bank is working to “improve its forecasting.” The kicker: Malhotra estimates that a potential US-India trade deal could add as much as 0.5% to overall GDP—a meaningful tailwind if negotiations ever resume.

US Dollar Bounces, But Concerns Mount

The USD/INR intervention didn’t occur in isolation. The US Dollar Index (DXY) itself gained 0.17% to near 98.40 on Wednesday, erasing a fresh eight-week low posted just a day earlier near 98.00. However, the recovery masks underlying economic anxiety in the world’s largest economy.

The combined October-November Nonfarm Payrolls (NFP) report delivered a sobering read: the Unemployment Rate climbed to 4.6%, the highest since September 2021. The labor market shed 105,000 jobs in October before rebounding with 64,000 new positions in November—a volatile swing that suggests underlying softness. Retail Sales remained flat month-on-month when growth of 0.1% was expected, while preliminary Purchasing Managers’ Index (PMI) data for December showed private sector activity moderating to 53.0 from 54.2 in November.

Fed expectations remain anchored, with the CME FedWatch tool showing minimal odds of rate cuts at the January 2026 policy meeting. Market analysts attribute the muted reaction to data distortions from the recent government shutdown, though all eyes now turn to Thursday’s US Consumer Price Index (CPI) release for November.

Technical Setup: Rupee Sellers Face Hurdles

On the daily chart, USD/INR has found a cushion above the 20-day Exponential Moving Average (EMA) at 90.1278, with the pair currently trading at 90.5370. The Relative Strength Index (RSI) sits at 59.23—above the 50 midline but well below overbought territory—signaling that momentum has cooled after recent extremes but positive bias persists.

For bulls defending higher levels, the 20-day EMA acts as the critical line in the sand. A sustained break above this moving average keeps upside momentum viable. However, a daily close below the 89.9556–89.8364 support zone would signal a shift toward consolidation and potentially tempt Rupee bulls to push lower.

The Macro Backdrop

The Rupee’s sensitivity to external shocks remains acute. Crude Oil prices matter enormously—India imports the vast majority of its petroleum. The US Dollar exchange rate drives most global trade settlements. Foreign investment flows act as a magnifying glass for both strength and weakness. When the RBI raises interest rates, it typically strengthens the Rupee through the “carry trade” mechanism, where investors borrow low to lend high. Conversely, elevated inflation—particularly if India’s price growth outpaces peers—corrodes Rupee value by reducing competitiveness of Indian exports.

The current intervention signals the RBI is willing to defend the currency aggressively. Whether this represents a true turning point or merely a pause in the Rupee’s deterioration will depend on whether US-India trade talks resume and whether foreign investors regain appetite for Indian assets. With 100 million in Indian rupees potentially representing significant portfolio allocations under review, every basis point in the USD/INR pair now carries outsized market impact.