The Indian Rupee (INR) opened on a strong note against the US Dollar (USD) on Tuesday, with the USD/INR pair sliding to near 88.10. The move comes amid a broad-based weakness in the US Dollar, following soft US Nonfarm Payrolls (NFP) data that has renewed market speculation about a potential Federal Reserve (Fed) interest rate cut in the upcoming policy meeting.
Nabotex Group’s broker Alex Tonoyan provides an in-depth explanation of this subject in their article.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, posted a fresh six-week low around 97.30, reflecting the persistent selling pressure on the US currency. Investors are closely watching the US labor market metrics, as the NFP report for August indicated that the US economy added only 22,000 jobs, the weakest reading since January 2021.
The disappointing employment data have almost cemented expectations for a Fed rate reduction. According to the CME FedWatch tool, traders currently assign an 11.6% probability to a 50-basis-point (bps) rate cut, lowering the federal funds rate to 3.75%-4.00%, while a standard 25-bps reduction remains the most likely scenario.
Market participants are now preparing for the US NFP benchmark revision report, scheduled for release on Tuesday. This report will provide preliminary revisions to the payrolls added in the 12 months ending March 2025, before the final benchmark revision scheduled in February 2026.
Historical trends suggest that such revisions can have a significant influence on monetary policy expectations. For instance, in 2024, the Fed implemented a 50-bps interest rate cut in September after the payroll revision report revealed that the economy had created 818,000 fewer jobs than initially estimated.
Indian Rupee Outlook Amid Market Volatility
While the INR gained against the USD in early trade, the currency’s outlook remains cautious, reflecting the outflow of foreign capital from the Indian equity markets. Foreign Institutional Investors (FIIs) continued their selling streak, offloading Indian equities worth Rs. 2,169.35 crores on September 8, bringing the cumulative six-day September outflow to Rs. 7,836.25 crores.
The persistent FII selling pressure is compounded by US-India trade tensions, which have cast a shadow over the rupee’s recovery potential. Although the Indian government’s GST rationalization aims to stimulate domestic consumption, analysts argue that such measures may not fully mitigate the adverse effects of trade-related tariffs.
A recent ING report highlighted that while Indian exports to the US in FY2025 accounted for less than 2% of GDP, the second-order impacts on employment, consumption, and business sentiment could be substantial.
Investors will also be monitoring upcoming inflation data. The US Consumer Price Index (CPI) for August is set for release on Thursday, followed by India’s CPI data on Friday. Analysts expect both nations to report elevated inflationary pressures, which could further influence central bank policy decisions and currency movements.
Technical Analysis: USD/INR Key Levels
From a technical standpoint, the USD/INR pair currently trades near 88.10, reflecting short-term weakness in the US Dollar. However, the near-term trend still retains bullish characteristics, as the pair remains above the 20-day Exponential Moving Average (EMA), currently near 87.82.
The 14-day Relative Strength Index (RSI) has declined to approximately 60.00, indicating moderate bullish momentum. Traders will watch for a sustained RSI above 60, which could signal a renewed upward move in the pair.
On the support side, the 20-day EMA acts as a critical floor, providing technical support for the USD/INR. Conversely, the psychologically significant round figure of 89.00 represents the key resistance level, which would need to be breached for the pair to resume a bullish trajectory.
The currency pair is also sensitive to macro events such as US labor market data, Fed policy shifts, and India’s domestic policy measures. Traders and investors should remain alert to FIIs’ activity, as sustained outflows could weigh on the INR even in the face of technical support levels.
Outlook and Conclusion
In summary, the USD/INR decline to 88.10 reflects a weaker US Dollar, driven by soft NFP data and rising expectations of a Fed rate cut. While the Indian Rupee benefits from the Greenback’s weakness, its gains remain vulnerable to FIIs’ outflows and geopolitical tensions between India and the US.
From a technical perspective, the 20-day EMA at 87.82 provides immediate support, while 89.00 marks the resistance hurdle. The RSI reading near 60 indicates room for bullish continuation, but market participants must monitor the NFP revision report and upcoming CPI releases closely.
Overall, the USD/INR pair sits at a critical juncture, influenced by a mix of macroeconomic data, central bank policy expectations, and domestic market flows. Traders should focus on key technical levels, inflation dynamics, and FIIs sentiment to navigate the short-term currency volatility effectively.
