Trade View: Rupee crosses 91 mark

The USD/INR pair fell to a record low, crossing the 91 mark yesterday. This was driven by persistent portfolio outflows in the absence of a trade deal announcement and a slightly more hands off FX intervention strategy by the RBI. In the near-term, we see 90-92 as a range for the pair by December-end, although expect some stability for the pair in Q4 FY26 supported by seasonal capital flows and with the current account deficit expected to turn into a slight surplus.

In the US, the labour market data, out on Tuesday gave a mixed picture as non-farm payroll data came in stronger than expected, rising by 64k, (vs expectation of 50k) in November. On the other hand, unemployment rate came in higher at 4.6% (vs. 4.4% in September). The data did little to change interest rate cut expectations (pause expected in January and 2 rate cuts seen in total in 2026). The data was not soft enough to raise calls for a January rate cut and markets’ remained cautious in drawing stronger conclusions due to data distortions in the print due to the government shutdown. The dollar index was largely range bound (last trading at 98.306). Markets will next watch out for the inflation data out later this week.

US Payroll Data: The nonfarm payrolls increased by 64k in November while declining by 105k in October (data released with delay due to US government shutdown) largely due to cutdown in federal employees as part of the administration’s push to shrink the government. On the other hand, along with higher-than-expected unemployment rate, hourly earnings came in weaker than expected (0.1% m-o-m, vs expectation of 0.3%). However, concerns around data distortions due to government shutdown kept the investors away from drawing any broad conclusions.

USD/INR: The USD/INR pair closed at a record low of 91.0275 on Tuesday, as compared to previous close of 90.73, as deadlock on US – India trade deal and foreign equity outflows continued to pressurise the pair. We expect the USD/INR pair to trade in 90 – 92 range in the near term.

EUR/USD: The EUR/USD pair rallied above 1.18 levels following dollar weakness after US jobs data release, however it traced back to 1.175 levels later. Focus will be on the Euro Area inflation data out today. With ECB expected to hold rates steady this week, the EUR/USD pair could continue to trade in a range of 1.17 – 1.185 in the near-term.

USD/JPY: The JPY strengthened against USD with the pair trading below 155 levels in early Asia trade after data showed better than expected growth in Japan’s exports (6.1% y/y vs expectation of 4.8%) in November. With the BoJ expected to raise rates by 25 bps in its upcoming meeting on Friday, the pair could strengthen further in the near term. We see a range of 150-155 in the near-term.

India Bond Yields: The 10Y government bond eased by nearly 2-basis points to end at 6.5745% on Tuesday. We expect bond yields to remain ranged ahead of RBI’s OMO purchase on Thursday, and trade in a 6.55%-6.62% range in the near term.

System Liquidity: Liquidity balances remained in a surplus of INR 1.20 lakh crore on Monday. Advance tax outflows and GST outflows later in the week are expected to weigh on liquidity. We see the possibility of liquidity moving below INR 1 lakh cr. and being close to neutral over the coming days. A larger deficit, which was earlier expected, is likely to be avoided supported by RBI’s VRR auctions (10-day VRR (INR 77,379 crore allotted) and 2-day VRR (INR 49,791 crore allotted)) and the second tranche of the OMO purchase along with the FX swap.