How Dollar to Rupees Exchange Rate Shifted: RBI's Market Intervention Explained

The Indian Rupee staged a remarkable recovery against the US Dollar on Wednesday, with the USD/INR exchange rate tumbling over 1% toward the 90.00 level from its all-time peak of 91.56. The dramatic reversal followed deliberate action by the Reserve Bank of India (RBI), which deployed aggressive intervention tactics in both the spot and Non-Deliverable Forward (NDF) markets. Reuters reported that state-run banks were aggressively offering US dollars, signaling coordinated central bank support for the domestic currency.

This exchange rate correction underscores the mounting pressure on India’s rupee, which has remained the weakest performer across Asian currencies in 2026, depreciating nearly 6.45% against the dollar since January. The currency weakness stems from a dual headwind: sustained outflows of foreign investment and the ongoing trade impasse between the United States and India, which has yet to yield a formal announcement. With no trade deal in sight, Indian importers have intensified their dollar purchases to cover import costs, further straining the rupee’s value.

Foreign Investment Exodus Adds Pressure on Currency Strength

The rupee’s struggles mirror the broader foreign institutional investor (FII) exodus from Indian equity markets. Throughout 2026, FIIs have remained net sellers for seven of the first eleven months, with December witnessing particularly sharp outflows. During that month alone, foreign investors unwound stakes worth Rs. 23,455.75 crore from the Indian stock market, accelerating capital flight and intensifying demand for US dollars among local businesses.

On the policy front, RBI Governor Sanjay Malhotra recently signaled to the Financial Times that interest rates will remain accommodative “for a longer period,” despite recent surprises in economic data. The governor acknowledged that the latest GDP figures caught the central bank off-guard, prompting adjustments to its forecasting models. Notably, Malhotra estimated that a potential US-India trade resolution could boost overall GDP by as much as 0.5%, highlighting how geopolitical trade tensions directly impact rupee valuations through their effect on economic growth expectations.

US Dollar Rally Reflects Mixed Economic Signals

Meanwhile, the US Dollar index (DXY), which measures the greenback’s strength against six major currencies, rebounded 0.17% to trade near 98.40 on Wednesday. This recovery came despite a barrage of weaker-than-expected economic data from the United States. The combined Nonfarm Payrolls (NFP) report for October and November revealed the unemployment rate climbed to 4.6%, marking the highest level since September 2021. Employment creation also disappointed, with the economy shedding 105,000 jobs in October before adding just 64,000 positions in November.

Beyond labor market weakness, retail sales data and preliminary PMI readings painted a concerning picture of US economic momentum. October retail sales came in flat month-on-month, missing expectations for 0.1% growth. Meanwhile, the S&P Global Composite PMI for December fell sharply to 53.0 from 54.2 the previous month, signaling moderating private sector activity. Despite these red flags, most market analysts believe the Federal Reserve will hold its policy rate steady, as the weakness was partially distorted by December’s government shutdown. The CME FedWatch tool currently suggests zero probability of rate cuts at the January 2026 Federal Reserve meeting.

Technical Picture: USD/INR Finds Support as Dollar to Rupees Rate Stabilizes

From a technical standpoint, USD/INR has retreated to 90.5370 on the daily chart but continues to hold above the rising 20-day Exponential Moving Average (EMA) at 90.1278, preserving a near-term upside bias for the dollar-to-rupee exchange rate. The Relative Strength Index (RSI) stands at 59.23, still above the neutral 50 midline, confirming positive momentum despite the recent pullback from overbought levels in the 70s.

Should USD/INR sustain itself above the 20-EMA support, the technical setup favors further upside potential for the dollar-to-rupees conversion. Initial support materializes at 90.1278, with a deeper support zone spanning 89.9556–89.8364. A daily close below that band would shift bias toward consolidation, whereas holds above it would open scope for continued dollar strength against the rupee. The technical setup remains constructive despite moderating momentum, suggesting the exchange rate structure is unlikely to see the rupee dramatically outperform the dollar in the near term.

What Shapes the Dollar-to-Rupee Exchange Rate Beyond Headlines?

Multiple factors will determine whether the rupee’s recovery momentum can sustain amid the current environment. Crude oil prices, which heavily influence India’s import costs and current account dynamics, remain a key variable for the exchange rate. Additionally, the magnitude and timing of FII capital inflows will directly impact rupee demand. The resolution of US-India trade negotiations could prove decisive—a breakthrough would likely strengthen the rupee against the dollar by improving India’s export outlook and growth expectations.

Investors should monitor Thursday’s release of the US Consumer Price Index (CPI) for November, as inflation data could reshape Federal Reserve rate expectations and thereby influence dollar valuations against emerging market currencies like the Indian Rupee. For those tracking the dollar-to-rupees conversion, the path forward hinges on whether the RBI’s intervention proves sufficient to stabilize the currency and reverse the year’s substantial depreciation trend.