The Indian rupee commenced the new year on a weaker footing, declining against the US dollar in the first trading session of 2026. The local currency faced selling pressure, influenced by foreign fund outflows and broader global uncertainties.
Rupee's Weak Start to the New Year
On Thursday, January 1, 2026, the rupee opened trading at 89.94 per US dollar in the interbank foreign exchange market. It proceeded to weaken further during the session, touching an early low of 89.99. This represented a fall of 11 paise from its previous close.
In the final session of 2025, held on Wednesday, the rupee had settled at 89.88 against the American currency. The initial 2026 movement continues a trend observed for much of the previous year, where underlying demand-supply dynamics kept the currency under consistent pressure.
Expert Analysis on Causes and RBI Stance
Forex market experts point out that the rupee is navigating a complex landscape as 2026 begins. Amit Pabari, Managing Director of CR Forex Advisors, noted that while the calendar has turned, market volatility is expected to persist. He highlighted the Reserve Bank of India's (RBI) approach under Governor Sanjay Malhotra.
"The RBI appears comfortable allowing the rupee to adjust with market forces, while remaining actively present to smooth excessive moves and maintain orderly conditions," Pabari stated in a PTI report.
Pabari also identified a potential positive trigger, stating that progress on reviving the paused India-US trade deal remains a key upside risk. Its finalisation could significantly boost market confidence. The rupee's performance in 2025 provides context, as it depreciated by approximately 6%, marking one of the steepest declines among Asian currencies last year.
Indian Rupee Outlook for 2026: Key Drivers
Kunal Sodhani, Head of Treasury at Shinhan Bank, provided a detailed outlook for the currency in the coming year. He explained that in a more flexible exchange-rate regime, the rupee's trajectory will be shaped less by a single domestic factor and more by a combination of global conditions.
The critical factors to watch in 2026 include:
- Foreign Portfolio Flows: Equity and debt inflows have historically supported the rupee, while sustained outflows can intensify weakness.
- Global Oil Prices: A sharp increase widens India's trade deficit, raising dollar demand and pressuring the rupee. Softer prices, conversely, offer support.
- RBI's Intervention Strategy: Markets will monitor the central bank's tolerance for currency moves, the scale of its interventions, and its use of tools like forex swaps.
Sodhani added that the currency will stay sensitive to global cues, with volatility linked to dollar movements and capital flows. He suggested that any positive development on the US-India tariff front could bolster the rupee. For the USDINR pair, he projected a broader trading band of 88.20 to 93.80 for the year 2026.
Despite the immediate headwinds, analysts reiterate that India's solid macroeconomic fundamentals and substantial foreign exchange reserves continue to provide a foundational layer of stability for the currency in the long term.
