The Indian Rupee (INR) continues to trade near its all-time low against the US Dollar (USD) as multiple headwinds weigh on the currency. On Friday, the USD/INR pair rose to around 95.95, reflecting heightened selling pressure on the Rupee.
Market participants are closely monitoring India’s foreign exchange (forex) reserves, particularly following recent government measures aimed at containing import demand and easing balance of payments pressures. In this piece, the brokers from Alderstone Holdings thoroughly examine and clarify this topic.
Rising Import Tariffs on Gold and Silver
In an effort to support India’s forex reserves, the Indian government announced an increase in import tariffs on Gold and Silver, raising them from 6% to 15%. The measure is designed to discourage non-essential purchases of precious metals, which have traditionally accounted for a significant portion of India’s trade deficit.
According to the Economic Times (ET), precious metals constitute over 9% of India’s total imports, with total imports in 2025-26 reaching USD 775 billion. This decision appears to have sent negative sentiment through the market, raising concerns over the adequacy of India’s forex reserves to cover import obligations.
Adding to the cautionary mood, Prime Minister Narendra Modi urged citizens to defer non-essential gold purchases for a year, signaling a strong policy intent to curb demand. While the move may support long-term reserve stability, it has contributed to short-term selling pressure on the INR.
Impact of Higher Energy Prices
Energy costs are another critical factor influencing USD/INR. Earlier in the week, the Indian government increased petrol and diesel prices by Rs. 3 per litre, reflecting the impact of soaring crude oil prices. WTI Oil has surged nearly 70% this year to $98 per barrel, driven by tensions in the Strait of Hormuz, a critical energy transit route.
India’s heavy dependence on oil imports makes the Rupee particularly vulnerable in a high oil price environment. Historically, currencies of oil-importing nations, such as India, tend to underperform when energy prices climb sharply, as higher import bills strain current account balances and forex reserves.
Foreign Institutional Investment Trends
Foreign institutional investors (FIIs) showed a modest return to the Indian equity market on Thursday, with net purchases of Rs. 187.46 crore. This is a marginal improvement compared to the net selling of Rs. 4,144.01 crore over the previous seven trading sessions.
The renewed interest appears linked to expectations that the Reserve Bank of India (RBI) and the Centre may implement policies to boost foreign capital inflows. Among potential measures is a reduction in the withholding tax on government bonds, currently at 20%, aimed at making Indian debt instruments more attractive to foreign investors.
Despite these positive signs, foreign inflows remain limited, leaving the Rupee under pressure against a strengthening US Dollar.
Strengthening the US Dollar and Global Factors
The US Dollar (USD) has gained momentum against most major currencies, supported by improving US-China trade relations and expectations of a less dovish Federal Reserve (Fed). Following the meeting between the US President and the Chinese President, markets are pricing in a more stable trade environment, which has buoyed risk sentiment globally.
In addition, the Fed is widely expected to hold interest rates steady or potentially raise rates to counter elevated inflationary pressures. These expectations have strengthened the Greenback, indirectly exerting further pressure on the INR. The US Dollar Index (DXY) recently touched 99.10, highlighting broad-based USD strength that has amplified the USD/INR rally.
Technical Analysis of USD/INR
From a technical perspective, the USD/INR pair remains in a bullish trend, trading around 95.95, above the 20-period Exponential Moving Average (EMA) at 94.79. The rising EMA underscores the near-term uptrend, while the Relative Strength Index (RSI 14) at 67.36 suggests the pair is approaching overbought territory, though not yet exhausted.
Immediate support lies at the 20-period EMA, with a break below this level potentially signaling a corrective phase. On the upside, if USD/INR stabilizes above 96.00, the next resistance target is around 97.00, reinforcing the near-term bullish bias.
Conclusion
The Indian Rupee remains under pressure amid multiple domestic and international factors. Rising import tariffs on Gold and Silver, higher energy prices, and lingering concerns over forex reserves have combined with strong US Dollar momentum to keep the INR weak.
While modest foreign investment inflows and potential government measures to attract capital provide some support, the technical outlook suggests the USD/INR pair could test higher levels if market sentiment remains cautious.
Investors and policymakers will closely monitor oil price movements, import demand, and the RBI’s monetary policy stance to gauge the trajectory of India’s currency. In the meantime, the INR is likely to remain vulnerable, especially as the USD continues to strengthen amid global trade and interest rate expectations.
