USD vs INR: Why the Indian Rupee May Remain Asia’s Weakest Currency in FY26

USD vs INR: Despite a bounce back in the Indian Rupee against the US Dollar, analysts warn that FII's outflows and delay in the India-US trade deal will keep the Rupee volatile and it may not lose its title as the weakest Asian currency soon.

The Indian Rupee (INR) rebounded to 90.0963 against the US Dollar (USD) on Wednesday after an aggressive intervention by the Reserve Bank of India (RBI) on Tuesday. The one per cent gain marked the biggest daily jump since May 23, yet experts caution that this recovery is unlikely to remove the INR’s tag as the weakest Asian currency in FY26.

What’s Dragging the Indian Rupee?

The Rupee has fallen nearly 6% year-to-date, hitting record lows against the USD, crossing the 91 mark recently. According to Anindya Banerjee, Head of Currency & Commodity Research at Kotak Securities, the depreciation is driven by three key factors:

1. Market sentiment

2. Capital outflows

3. Global macroeconomic conditions

Banerjee explains that the Rupee’s weakness stems from uncertainty surrounding the pending India–US trade deal and broader trade tensions.

FIIs and Capital Outflows

Foreign Portfolio Investors (FPIs) have pulled out approximately USD 2.7 billion in the first two weeks of December alone—the largest monthly outflows of the year so far. According to Sandeep Pandey, Co-founder of Basav Capital, the selling pressure began in July 2025 following the impact of US tariffs on Indian businesses. He notes:

“FIIs’ selling is the major reason for the sharp fall in the Rupee. Fundamentals are likely to improve once the India-US trade tariff issue is resolved permanently.”

When Could the Rupee Recover?

Pandey expects that a conclusion to the India-US trade deal, potentially by the end of March 2026 (FY26), could help stabilize the Rupee. Even if the deal is signed in the first quarter of 2026, the economic impact is expected to materialize only one to two quarters later, meaning INR volatility is likely to persist throughout FY26.

Near-Term Technical Outlook

Anindya Banerjee highlights the key technical levels for the USD-INR pair:

• Support: 90.00

• Resistance: 91.25

• A sustained break above 91.25 could open the path toward 92.00.

The RBI’s measured intervention appears intentional, allowing controlled depreciation while supporting export competitiveness in a global trade-war environment.

Long-Term Chart Structure

According to Ponmudi R., CEO of Enrich Money, the USD-INR pair has been trading within a long-term rising wedge for over a decade. He explains:

• The 88.00–86.50 zone acts as strong long-term support.

• A decisive break below this range could push the pair toward 85.00.

• On the upside, 91.00–92.00 is a key resistance band, with the medium-term target zone of 94.00–96.00.

Ponmudi adds:

“The broader market setup continues to reflect a structurally strong US Dollar and a gradually depreciating Rupee. Unless there is a breakdown below the rising structure, the long-term trend remains intact.”

Conclusion

While the RBI’s intervention provided short-term relief for the Indian Rupee, structural challenges such as trade uncertainty, FII outflows, and global macro factors suggest that the currency may continue to underperform against the US Dollar through FY26. Traders and investors should watch trade negotiations and technical levels closely for signs of a sustainable reversal.