The Indian rupee touched a six-month high of 93.70 against the US dollar on November 9. The recovery from its recent weakness came due to improved global investor sentiment, along with measures taken by the Reserve Bank of India (RBI). The key question is whether the rupee can strengthen further and close the year below 94 against the dollar.
Divya Mandaliya, Commodity & Currency Research Analyst at Anand Rathi, however, believed that “the probability of USD/INR closing 2026 above 94 stands at roughly 65–70%.”
Economists like IDFC FIRST Bank and Elara Capital also projected the USD/INR exchange rate at 92-94 by December 2026.
Rupee’s recovery faces risks from $30 billion FPI outflows
Divya Mandaliya of Anand Rathi highlighted that the currency has gained nearly 3.25% from its early-October low of around 96.80, supported by foreign portfolio inflows, a softer dollar and falling crude prices.
“However, the recovery may prove temporary rather than structural, as foreign portfolio investors have withdrawn approximately $30 billion from Indian equities in 2026 through November 6, despite a reversal to nearly $5 billion in net inflows during November. Crude oil also remains a key risk, with any rebound likely to increase India’s import bill and dollar demand,” Mandaliya of Anand Rathi noted.
A stronger US dollar, rising US bond yields or renewed geopolitical tensions could also reverse the currency’s recent gains.
Rupee’s next move hinges on oil prices: Elara
Commenting on this, Garima Kapoor Economist and Deputy Head of Research at Elara Capital said to financialexpress.com that a close below 94 on Dec 31 is quite realistic given the momentum. “We expect a range around 93.0–95.0 for now in the immediate term unless oil or flows shift sharply,” Kapoor said.
Kapoor also added that Brent prices and FPI inflows are key factors that need to be watched. “For now assets and flows are reacting to the Democrats sweep of the mid term elections. The course of the US Iran conflict, the correction in US semicon stocks and FPI inflows into India will be critical,” Kapoor added.
USD/INR may trade between 93.50–95.50 in December: Anand Rathi
Divya Mandaliya of Anand Rathi said “USD/INR is likely to trade in a 93.50–95.50 range into December, with support at 93.30 and 92.70 and resistance at 94.80–95.50 against Dollar.”
A rebound in crude or renewed FPI outflows could push the pair towards the upper end of the range, while sustained inflows and softer oil prices could keep it below 94. “Overall, a year-end close above 94 remains marginally more likely.”
Anand Rathik noted that the Reserve Bank of India (RBI) could limit further rupee appreciation by purchasing dollars from the market. This could prevent the currency from strengthening significantly against the US dollar.
IDFC FIRST Bank sees rupee at 92–94/$ by December
IDFC First bank also projected the USD/INR exchange rate at 92-94 by December.
“In the near term, there could be an appreciation bias for the INR if there is a de-escalation in US-Iran tensions and/or a further correction in AI stocks. However, the appreciation will be limited by two factors: RBI FX management and the global cost of capital,” IDFC First bank noted.
However, “over the medium term, a gradual depreciation of the INR against the USD is expected to persist.” Economists at IDFC First bank said expecting USD/INR exchange rate at 94-95 by March 2027 and 96 by June 2027.
Why could the rupee appreciate in the near term?
The recent correction in US AI stocks has raised concerns about valuations and whether returns from large investments in artificial intelligence will meet investor expectations. This has encouraged some foreign investors to reassess their exposure to global markets and increased interest in Indian equities.
The US midterm election results could also lead to a more restrained approach towards tariff policies and geopolitical tensions under US President Donald Trump.
According to IDFC First Bank, the possibility of easing US-Iran tensions has improved global market sentiment, bringing down crude oil prices and US Treasury yields.
The market has also reduced its expectations of Federal Reserve rate hikes. Expectations of a more favourable global inflation outlook could support capital flows into emerging markets such as India.
However, IDFC FIRST Bank expects the improvement in foreign capital inflows to remain moderate because the competition for global investments remains intense.
Why could rupee appreciation remain limited?
Despite the improvement in foreign investor sentiment, IDFC FIRST Bank believes the rupee may not see sustained appreciation because of RBI’s large negative forward book.
The RBI had a net dollar short position of $239 billion as of September 2026. This represents its commitment to provide dollars when existing buy-sell swaps mature.
Of this amount, around $40 billion is due within one year, $56 billion has a maturity of one to three years, while the remaining $143 billion is due over three to five years.
The large forward position means the RBI will need to accumulate dollars as and when capital inflows improve to meet its future commitments.
As a result, any improvement in foreign capital inflows could be absorbed by RBI’s dollar accumulation, limiting the extent of rupee appreciation.
IDFC First Bank also noted that the large negative forward book restricts RBI’s ability to sell dollars aggressively in the spot market.
Conclusion
The rupee may strengthened towards the 92–94 range by December 2026.
However, its near-term trajectory will depend on whether improving global risk sentiment translates into sustained foreign capital inflows and whether crude oil prices remain supportive.
While the easing of US-Iran tensions, a correction in US AI stocks and improved investor appetite could help the Rupee, the RBI’s large negative forward book could limit further gains. Higher Brent prices or a reversal in FPI flows could also put fresh pressure on the currency.
