May 9, 2025
New Delhi, India
USDINR Analysis
The Indian Rupee showed modest recovery against the US Dollar on Friday, reversing some losses as traders anticipate possible Reserve Bank of India (RBI) intervention. The USD/INR pair opened with a gap up after gaining nearly 1% the previous day, driven by risk aversion stemming from heightened geopolitical tensions and global monetary policy signals.
Market sentiment took a hit after India reported it had neutralized military threats along its northern and western borders. Media reports of drone attacks and retaliatory strikes across the Line of Control further fueled investor anxiety. Pakistan claimed to have downed Indian drones, while India confirmed targeting multiple air defence systems in Pakistan. These developments have triggered sharp reactions in currency and equity markets.
Forex traders suggest the RBI is likely to step in to curb excessive volatility. A senior trader cited by Reuters said the central bank may not tolerate continued rupee depreciation, suggesting that intervention is imminent if pressure persists. Despite this, the USD/INR pair remained buoyed by the broader strength in the greenback.
The US Dollar Index (DXY) traded around 100.60, supported by upbeat US economic data. Weekly jobless claims fell to 228,000, beating expectations, while continuing claims also declined. Meanwhile, the Fed’s recent policy decision to hold rates steady at 4.25%–4.50% was accompanied by a cautious tone. Chair Jerome Powell warned that trade tariffs could derail progress on inflation and employment, signaling a likely “wait-and-see” approach in the coming months.
Oil prices also remained firm, adding to rupee pressures given India’s heavy reliance on crude imports. Analysts noted that FII inflows and ongoing open market operations by the RBI could help cushion further downside unless India-Pakistan tensions intensify.
Adding to market volatility, the Global Times reported that China is unlikely to ease tariffs before upcoming trade talks with the U.S. in Geneva. This has added another layer of global risk aversion, keeping emerging market currencies under pressure.
Domestically, Indian rupee option volumes surged following news of military actions, though the balance between calls and puts suggested traders were positioning for volatility rather than directional bets. Bond markets also responded with Indian 10-year G-Sec yields expected to hold within the 6.30%–6.40% range, supported by surplus liquidity and hopes of further rate easing by the RBI.
With forex reserves data due later in the day, and tensions along India’s borders showing no signs of immediate resolution, the rupee’s trajectory remains closely tied to both geopolitical developments and central bank action.
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