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Rupee strengthens but may face pressure after RBI FX swap closure
USD/INR was around 95.60, and traders see the pair swinging between 95.00 and 95.50 this week as the Fed’s hike odds cool after weaker US retail sales.
The Indian rupee held firm against the US dollar on Monday after two days of losses, with the USD/INR pair trading near 95.60. Even so, FXStreet said the rupee may struggle ahead, with the pair potentially moving higher if the RBI’s FX swap facility exit tightens conditions for FCNR deposit-related swaps.
The RBI announced it will shut its FX swap facility for FCNR deposits a month early, alongside data showing the central bank’s deposit swap window attracted nearly $57 billion. Traders expect possible short-term activity as overseas clients look to secure FX deposits before the facility closes on August 31, with foreign portfolio flows and routine hedging also affecting the exchange rate.
Market participants said they will watch for minutes from the RBI’s August policy meeting, when interest rates were kept unchanged. Looking further out, most analysts expect either a shallow rate-hiking cycle beginning in December or a continuation of the current pause across the rest of 2026.
FXStreet also tied the dollar’s softness to weaker-than-expected US economic data, noting that the US Census Bureau reported retail sales fell 0.6% month over month in July after a 0.2% rise in June. The outlet added that markets have cut their bets on Fed rate hikes, with CME FedWatch pricing a 33.1% chance of a hike next month, down from 44% the prior week.