The India–US trade deal could boost the rupee by reducing tariff uncertainty and attracting foreign investment, analysts say.
Could Expectations Around the India–US Trade Deal Boost the Rupee (Source: X)
Indian equity markets opened sharply higher on Tuesday following the announcement of the India–US trade deal late Monday night. The NSE Nifty surged 1,083 points (4.32%) to 26,12 at the open, while the BSE Sensex rose 2,488 points (3.05%) to 84,154. Broader indices also gained, with the Nifty MidCap 100 and SmallCap indices up around 4% each. The rally was driven by investor optimism after US President Donald Trump announced the agreement with Prime Minister Narendra Modi, signaling improved market sentiment and potential foreign investment inflows. The Indian rupee is also expected to open higher, with the 1-month non-deliverable forward (NDF) indicating a range of 90.15–90.25 per US dollar, after closing at 91.5125 on Monday, as the trade deal eases hedging pressures and boosts confidence in Indian assets.
The trade deal, announced by US President Donald Trump on social media following a call with Prime Minister Narendra Modi, removes a punitive tariff regime that had raised duties on Indian exports to 50%, the highest in Asia.
By ending penalties related to India’s purchase of Russian energy and reducing reciprocal tariffs to 18%, the agreement is expected to encourage foreign capital to return after record equity outflows in 2025 had kept the rupee under pressure.
Marc Velan, head of investments at Lucerne Asset Management in Singapore, said that the trade agreement eliminates much of the policy and tariff uncertainty that had been pressuring Indian assets. He added that this could pave the way for a short-term rebound in the rupee and equities, driven by improved market sentiment and foreign investment flows.
The rupee was Asia’s weakest currency in 2025, dropping nearly 5% for the year and over 2% last month.
MUFG Bank observed that the recent weakness in the rupee was mainly due to low portfolio inflows. The bank noted that the trade deal could have medium-term benefits for India by enhancing export competitiveness and reducing tariff-related uncertainties.
The agreement is expected to break a self-reinforcing cycle of hedging activity that had put additional strain on the rupee. Importers, preparing for prolonged currency weakness, had increased dollar purchases in the forward market, while exporters were reluctant to hedge, causing a demand-supply mismatch.
A senior treasury official at a private-sector bank said the removal of the tariff overhang could address what had become a psychological issue for the currency.
With expectations of rupee depreciation easing, the imbalance between importer and exporter hedging is likely to narrow, setting the stage for a more virtuous cycle that could strengthen the rupee.
He added that the moderation in corporate hedging may also coincide with a pullback in speculative bets against the rupee, further supporting its recovery.
