USD/INR Extends Bullish Momentum Despite Narrowing Trade Deficit
GlobePRwire
The Indian Rupee (INR) extended its losing streak against the US Dollar (USD) for the fourth consecutive trading day on Tuesday, with the USD/INR pair advancing to near 91.25, a new multi-year high.
Despite India reporting a narrower trade deficit for November, the Rupee remains under pressure, driven primarily by foreign portfolio outflows and continued dollar demand. In their latest publication, LFtrade experts explore the central elements of the topic in depth.
Persistent FII Selling Keeps INR Under Pressure
The decline of the INR has been heavily influenced by consistent Foreign Institutional Investor (FII) selling in the Indian equity market. Data from the past month shows FIIs have offloaded stakes worth Rs. 21,073.83 crore, maintaining a net selling position throughout all trading sessions.
Market analysts note that trade frictions between India and the US have also exacerbated the pressure on the INR. Alongside non-deliverable forward (NDF) settlements, these factors have strengthened the bullish momentum in USD/INR, limiting gains from India’s improving trade balance.
Reuters reports indicate that the strong demand for the US Dollar amid FII outflows and NDF maturities has reinforced the USD/INR uptrend, making the currency pair one of the most watched in the emerging market space.
Improved Trade Deficit Fails to Lift INR
India’s trade data for November presented a more favorable picture for the economy. The merchandise trade deficit narrowed sharply to $24.53 billion from $41.68 billion in October, surpassing Reuters’ consensus estimate of $32 billion.
This improvement was largely driven by a 19% year-on-year increase in goods exports, with shipments to the US rising 22.6%, highlighting resilient demand for Indian goods abroad.
However, the INR failed to gain momentum, reflecting the market’s focus on capital flows and global liquidity factors rather than fundamentals alone. Investors remain cautious, as FIIs continue to withdraw funds from equities, offsetting the positive impact of the narrower trade deficit.
Investors Eye US Nonfarm Payrolls
Global investors are now focused on the upcoming US Nonfarm Payrolls (NFP) report for October and November, scheduled for release later. The data is expected to provide fresh insights into the Fed’s monetary policy trajectory.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is hovering near an eight-week low of 98.13, highlighting mixed market sentiment.
Federal Reserve policymakers have cut interest rates by 75 basis points this year, citing weak labor market conditions. Comments from New York Fed President John Williams emphasize a focus on balancing jobs amid cooling employment.
Market expectations suggest that the US unemployment rate remained steady at 4.4% in November, and any signs of labor market weakness could further fuel dovish Fed expectations, potentially influencing USD/INR movements. According to the CME FedWatch tool, there is a 67% probability that the Fed will cut rates at least twice by the end of 2026, which remains a key driver of currency market positioning.
Technical Analysis: USD/INR Holds Above 91
From a technical standpoint, USD/INR trades around 91.25, the highest level ever recorded in intra-day trading. The 20-day Exponential Moving Average (EMA), currently at 90.0726, continues to provide underlying support, reinforcing the bullish bias.
The 14-day Relative Strength Index (RSI) at 73.89 signals overbought conditions, suggesting that while the pair maintains strong momentum, immediate upside may be tempered by short-term profit-taking.
Traders are monitoring pullbacks closely, as a daily close below the 20-day EMA could trigger a deeper correction toward 90.00, a key psychological support level. Conversely, sustained strength above the current 91.25 level could open the path for USD/INR to test 92.00, extending the ongoing bull run.
Outlook and Key Drivers
Despite an improved trade deficit, the INR remains vulnerable to external factors such as FIIs selling, global liquidity trends, and US monetary policy outlook. The USD/INR pair continues to exhibit a bullish technical structure, supported by an upward-sloping EMA and strong momentum indicators.
In the near term, the US NFP data will act as a major catalyst, influencing Fed expectations and USD demand. Meanwhile, domestic indicators such as HSBC PMI and trade flows will continue to moderate market sentiment toward the INR.
For traders and investors, the current USD/INR dynamics highlight the importance of monitoring cross-border capital flows, technical supports, and global macroeconomic cues. The pair’s bullish momentum is likely to persist unless there is a significant shift in FIIs' activity or global risk sentiment.
Conclusion
The USD/INR bull run shows no signs of slowing despite positive trade data from India. Persistent FII selling, dollar demand, and caution ahead of US NFP data are key factors maintaining pressure on the Rupee, while technical indicators suggest that the pair could extend gains toward 92.00 unless major corrections occur.