Exchange Rate Dynamics

The U.S. dollar continued to hover around the 90‑INR threshold early on January 2, 2026, a level that has been a focal point for the Reserve Bank of India (RBI) in recent days. The USD/INR pair traded within a narrow band, oscillating between 89.92 and 89.98 throughout the morning session, before settling at 89.98 by mid‑day. This proximity to the 90‑mark coincides with a series of interventions attributed to the RBI via state‑run banks, which sold dollars to shore up the rupee.

RBI’s Quiet Intervention

Market observers have noted a pattern of dollar sales executed by state‑run banks—a proxy for RBI action. The interventions appear aimed at preventing the rupee from breaching the 90‑level, which is seen as a psychological and technical support line. The rupee’s ability to hold near 89.92–89.98 indicates that the central bank’s liquidity injections are effectively countering the natural pull of the dollar, which has been strengthening under the backdrop of a robust U.S. dollar index and rising crude prices.

Market Sentiment and Liquidity Conditions

The rupee’s slight appreciation—six paise on the day—was attributed to thin liquidity conditions that amplified everyday demand‑supply imbalances. Forex traders expect the pair to trade in a constrained range until the RBI’s intervention wanes or the market receives new catalysts. The current environment suggests that the RBI will maintain its protective stance until broader economic signals, such as domestic equity performance or global commodity price shifts, provide a clearer trajectory.

Broader Market Context

While the foreign exchange market focused on the dollar‑rupee dynamics, Indian equities offered a mixed picture:

  • Sensex rose by 300 points to 85,526.10, a gain of 0.4 %, reflecting positive global cues.
  • Nifty increased by 99.95 points to 26,246.50, up 0.38 %. Key winners included Hindalco Industries, Coal India, and Bharat Electronics, while ITC and Bajaj Auto added to the gains.

These equity movements, though modest, provide supportive domestic sentiment that can buttress the rupee against external shocks. However, the rupee remains vulnerable to sustained fund outflows and any deterioration in the U.S. dollar index.

Forward Outlook

Given the current data, the following factors will likely shape USD/INR in the coming days:

  1. RBI’s Intervention Policy – Continued dollar sales via state‑run banks could keep the rupee anchored near the 90‑level.
  2. U.S. Dollar Index Movements – A strengthening dollar, driven by higher U.S. interest rates or favorable economic data, may exert downward pressure on the rupee.
  3. Commodity Prices – Declining crude oil prices could provide relief, whereas spikes may reinforce dollar strength.
  4. Domestic Equity Momentum – Stronger equity performance could inject confidence and support the rupee.

In sum, the USD/INR pair is poised to trade within a tight corridor, with the RBI’s discretion and global macro‑economic developments dictating the eventual direction.