The Indian Rupee (INR) declined against the US Dollar (USD) on Monday, with the USD/INR pair trading around 85.50, reflecting weakness in Indian equities and renewed foreign outflows. After rallying in the previous sessions, Indian stock indices corrected slightly, with the NIFTY 50 falling by 0.33% and the BSE SENSEX dropping 0.34%, triggering profit-booking after recent highs.
The retreat in Indian equities comes amid concerns over possible Foreign Institutional Investor (FII) outflows, which are pressuring the rupee despite strong inflows seen earlier in June. The selling may also be driven by caution ahead of key Indian economic data releases later today.
Crude Oil and Upcoming Data Add to Pressure
The Indian Rupee remains under pressure as crude oil prices climb, with WTI near $64.70 per barrel. Being a major oil importer, India’s trade balance is vulnerable to such price hikes. Although OPEC+ plans to boost output by 411,000 barrels per day in August, near-term risks still favor elevated oil prices.
Meanwhile, traders await key Indian macro data industrial and manufacturing output, along with the trade deficit which could influence the Rupee’s direction based on economic health signals.
Fed Rate Cut Expectations Weigh on DXY
Notwithstanding INR weakness, the US dollars strength which has drifted down on the US dollar index to 97.20 on increased expectations of a Fed rate cut in September, could be justified by expectations of a benign US jobs report with 110,000 new jobs for June and a higher unemployment rate of 4.3%. Adding to pressures, US personal income and consumption fell in May, suggesting softness in the economy.
Concurrent with that situation, political uncertainty about the Fed’s leadership remain visible as reports indicate that President Trump will pick a replacement for Jerome Powell soon, adding further uncertainty to the Fed’s apparent direction in policy.
Growth Forecast Slows Despite RBI Rate Cuts
A Reuters poll has forecasted the GDP growth for India at 6.4% for the fiscal year ending March 2026, a small reduction from last year’s 6.5%. This is despite the ongoing front-loaded rate cuts from the Reserve Bank of India. Analysts suggest global headwinds, and weak exports are contributing to the drag on momentum.
That aside, FIIs again seem to be re-engaging with Indian equities pouring an incredible ₹8,915 crore in just June alone, most likely reflecting confidence in India’s medium-term growth story.
USD/INR Holds Above 85.30 Support
USD/INR is currently trading around 85.50 slightly below the 9-day EMA of 85.81 and with a 14-day RSI number below 50 both indicating sustained bear pressure. The key support is 85.30 the low for the month, while resistance is located at 85.81. A bounce is possible as long as the pair stays above support, but further weakness in equities or crude going higher could exacerbate losses in the INR.
Conclusion
USD/INR is going higher as Rupee weakened because of worries about FII outflows, high crude prices and hesitation ahead of important Indian economic data releases. The dovish Fed is weighing on the Dollar, however, the near term disappointment is favoring INR downside unless domestic data surprises positively.
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