The Indian Rupee entered the period of the Iran conflict while already facing strong capital outflows, which increased its vulnerability. Vietnam’s dong is also described as facing outflows, but to a smaller extent.
Reuters reported that the Reserve Bank of India is considering steps to attract more US Dollar inflows. Options mentioned include a possible 2013-style FCNR swap scheme and removing withholding tax on overseas government bond holdings.
MUFG projects USD/INR to trade in a 95.00–96.00 range over the next 12 months. This forecast implies continued rupee underperformance over that period.
The piece was produced using an artificial intelligence tool and then reviewed by an editor. It was published under the byline of the FXStreet Insights Team.
Looking back at 2025, we saw the Indian Rupee was already on shaky ground with significant capital outflows even before geopolitical tensions flared up. This underlying weakness supports the view that the Rupee will continue to underperform against the US Dollar. The expectation is for the USD/INR pair to climb towards the 95.00 to 96.00 range over the next year.
However, we must watch the Reserve Bank of India closely for any announcements on measures to attract dollar inflows. Reports suggest they are considering a special deposit scheme for overseas Indians or tax cuts, similar to the FCNR swap program used successfully back in 2013 to stabilize the currency. This potential for intervention could lead to sudden, sharp moves, making implied volatility in USD/INR options an interesting play.
Recent data confirms this pressure, with foreign portfolio investors pulling a reported $4 billion from Indian equity markets in April 2026 alone. The current USD/INR spot rate hovering around 93.50 already points towards the forecast range, and India’s forex reserves have dipped slightly to $640 billion, suggesting the central bank is already active in the spot market. This continued outflow trend strengthens the case for further Rupee weakness.
For derivative traders, this outlook suggests positioning for a higher USD/INR in the coming weeks. Buying call options on the USD/INR pair is a direct way to profit from the expected Rupee depreciation. Given the potential for short-term volatility from RBI actions, traders might also consider bull call spreads to lower the upfront cost of entry while still capturing a significant portion of the upward move.
Another approach involves using the forward market to lock in a future exchange rate. Traders expecting the Rupee to weaken can sell INR forwards, agreeing to exchange Rupees for Dollars at a future date. This strategy allows them to benefit from a rate that is likely more favorable than the spot rate will be in the coming months.
