Indian Rupee holds ground despite RBI ending FCNR forex swap window early

The Indian Rupee (INR) trades stronger against the US Dollar (USD) on Monday after two days of losses, with the USD/INR pair trading around 95.50 at the time of writing. However, the Indian Rupee (INR) may struggle in the coming period, potentially driving the pair higher, following the Reserve Bank of India’s (RBI) announcement to shut its FX swap facility for FCNR deposits a month ahead of schedule. Data released alongside the decision highlighted that the central bank's policy measures, including the deposit swap window, successfully attracted nearly $57 billion.

Market traders expect the USD/INR pair to fluctuate between 95.00 and 95.50 this week. Some anticipate a short-term rush among overseas clients aiming to secure FX deposits before the facility officially closes on August 31, while foreign portfolio flows and routine hedging activity will further direct currency movement.

Investors will closely monitor the release of the minutes from the RBI's August policy meeting, during which interest rates were kept unchanged. Looking ahead, most analysts project that the RBI will either initiate a shallow rate-hiking cycle starting in December or maintain its pause across the remainder of 2026.

India inflation uptick supports RBI’s steady policy stance

Analysts at Societe Generale highlight that India’s inflation backdrop remains broadly contained, noting that headline CPI “edged up modestly to 4.45% yoy in July from 4.38% in June,” a move they say “reinforc[es] the latest decision by the RBI to keep policy on hold.”

The USD/INR pair holds losses as the US Dollar (USD) declines amid weaker-than-expected US economic data and shifting central bank expectations. The US Census Bureau reported on Friday that Retail Sales fell by 0.6% month-over-month in July, following a 0.2% rise in June, coming in below the market consensus of 0.1% growth. On an annual basis, Retail Sales rose 5.0% in July compared to 6.8% in the previous month.

Traders have reduced their bets on Federal Reserve rate hikes following a slew of softer US data, including CPI, PPI, and Retail Sales. Markets are now pricing in a 33.1% chance of a rate hike next month, down from 44% last week according to the CME FedWatch tool.

Fed seen keeping hawks in check as disinflation evidence builds

Strategists at Scotiabank argue that last week’s data have likely provided sufficient reassurance on the inflation front to justify a more patient stance from policymakers. They highlight that “there is likely to have been enough evidence of disinflation in last week’s data (along with signs of slowing in the labour market) to allow Fed Chairman Warsh to keep the inflation hawks at bay,” reinforcing expectations that the Fed can resist pressure for an early shift back toward a more aggressive tightening bias.

Technical Analysis: USD/INR remains above moving averages within ascending channel

USD/INR holds losses after two days of gains, trading around 95.50 at the time of writing. The technical analysis of the daily chart indicates that the pair is remaining within the ascending channel, suggesting a prevailing bullish bias.

Additionally, the USD/INR pair holds a slight constructive bias as spot remains above both the nine-period Exponential Moving Average (EMA) at 95.4418 and the 50-period EMA at 95.3913, suggesting near-term dips are being cushioned by dynamic support.

The 14-day Relative Strength Index (RSI) hovers just below the 50 mark at 49.2, hinting at broadly balanced momentum after the recent pullback, while the latest FXS Fed Sentiment Index reading around 134.6 adds a modestly supportive macro backdrop without yet translating into a clear directional breakout on the chart.