Rupee consolidates as dollar faces barrier

Trump’s threat of a 25 per cent tariff on countries that do business with Iran is a potential negative for the local currency as Iran has been India’s top rice export destination.
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The dollar, which was on a recovery since Christmas 2025, hit a roadblock on Monday. In the US, Federal Prosecutors opened a criminal investigation on the US Fed Chairman US Fed, reinforcing the concerns over the central bank’s independence.

From the rupee’s perspective, it’s a positive if the dollar softens. However, there was not much of a gain. In fact, the domestic unit, which ended at 90.19 on Tuesday, has largely been charting a narrow sideways trend over the past week.

That said, the rupee is not without risks. Trump’s threat of a 25 per cent tariff on countries that do business with Iran is a potential negative for the local currency as Iran has been India’s top rice export destination.

Still under RBI’s inflation target range of 2-6 per cent, the CPI inflation hardened in December to 1.33 per cent compared to 0.71 per cent in November. On the other hand, RBI’s $10 billion worth of rupee liquidity injection (through a $10 billion dollar-rupee buy-sell auction) might weigh on the domestic unit.

Nevertheless, the effect of increase in inflation and liquidity injection on the rupee can be temporary if any. What can be of concern is the capital outflows. The net FPI outflows since the beginning of 2026 stood at $1.3 billion as on Tuesday (January 13). Unless the equity market recovers, there could be more foreign selling, which can drag the rupee lower.

Chart 

The rupee, after facing resistance at 89.40 on December 25, started to decline. But over the past week, it has been moving within the price band of 89.80-90.30. So, the next leg of trend depends on the direction of the break of this region.

If the local currency surpasses the hurdle at 89.80, it can retest the barrier at 89.40. If this is breached, it can quickly move up to 89 or possibly to 88.80. On the other hand, if the support at 90.30 is invalidated, the rupee can drop to 90.50 and 91.

How the rupee moves also depends on the dollar index, which is now facing resistance at 99 and 99.50. Another key barrier is at 100.20. If the dollar index goes past this, the medium-term outlook can turn positive, in which case the rupee might hit record lows.

If the dollar index drops from the current level, it has a support at 98.70. A breach of this can take it further down to 98. In this scenario, the rupee might attempt to get past the resistance at 89.40.

Outlook 

The rupee has challenges and so does the dollar index. Given the circumstances, the dollar-rupee exchange rate might stay within 89.40 and 90.30 in the near term.

Published on January 13, 2026