USD/INR extends rally on spike in US Dollar demand

• The Indian Rupee tumbles in Monday’s early European session. 
• A firmer USD, Donald Trump's trade policies and India's economic challenges weigh on the INR. 
• The possible RBI intervention might prevent the local currency from depreciating significantly. 

The Indian Rupee (INR) remains under pressure on Monday after hitting a historic low of 81.00 in the previous session. The stronger US Dollar (USD) due to month-end demand, uncertainties from the incoming Donald Trump, and concerns about India's slowing growth and widening trade deficit create a tailwind for the pair. 

The Reserve Bank of India's (RBI) intervention by selling the USD might help limit the local currency’s losses in the near term. However, the markets are likely to be muted as the year-end could keep it rangebound. Later on Monday, traders will keep an eye on India’s Fiscal Deficit, which is due on Monday. On Tuesday, the Indian Trade Deficit for the third quarter (Q3) and Infrastructure Output data for November will be released. 

Indian Rupee faces challenges after reaching record lows

• "Rupee volatility seems to be back, and we should see bigger movements in the (USD/INR) currency pair as we move forward," noted Anil Bhansali, head of treasury at Finrex Treasury Advisors.
• "The excessive positions are being flushed out now that the RBI has intervened with intent," a currency dealer at a mid-sized private bank said.
• Foreign portfolio investors have sold over $10 billion of local stocks and bonds over this quarter on a net basis, according to stock depository data.
• India's economy is estimated to grow at around 6.5% in fiscal year 2024/25, closer to the lower end of its 6.5%-7% projection, the government said on Thursday.
• India's economy is likely to expand at 6.5-6.8% this fiscal year and slightly higher between 6.7-7.3% in FY2026, boosted by domestic consumption, according to Deloitte Sunday. 

USD/INR’s bullish outlook remains in play

The Indian Rupee trades on a weaker note on the day. According to the daily chart, the USD/INR pair holds above the key 100-day Exponential Moving Average (EMA), suggesting bulls still have control of the medium-term trend. Nonetheless, further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation as the 14-day Relative Strength Index (RSI) stands near 76.10, indicating an overbought condition.

If bulls manage to push above the ascending channel upper boundary at 85.35 and can sustain trade up there, that may attract technical buyers to 85.50, en route to the 86.00 psychological level. 

If bearish momentum forms, we could see a move back toward the crucial support level in the 85.10-85.00 zone, where the lower boundary of the trend channel and the round mark meet. A breach of this level could see a drop to 84.30, the 100-day EMA.