Indian rupee set to rally on prospects India-US trade deal to attract flows

MUMBAI: The Indian rupee is set to rally sharply at open on Tuesday, supported by expectations that the U.S.–India trade deal will draw foreign investors back to Indian assets and alleviate hedging activity-related pressure.

The 1-month non-deliverable forward indicated the rupee will open in the 90.15-90.25 range versus the U.S. dollar, having settled at 91.5125 on Monday.

The deal, announced by U.S. President Donald Trump on social media following a call with Prime Minister Narendra Modi, effectively dismantles a punitive tariff regime that had seen duties on Indian goods exports climb to 50%, the highest in Asia.

By removing penalties linked to India’s purchase of Russian energy and slashing reciprocal tariffs to 18%, the agreement is expected to encourage a return of foreign capital after record equity outflows in 2025 left the rupee under sustained pressure.

“The trade deal removes a chunk of policy and tariff uncertainty that had been weighing on Indian assets, opening the door for a near-term bounce in the rupee and equities via sentiment and foreign flows,” said Marc Velan, head of investments at Lucerne Asset Management in Singapore.

The rupee was the worst-performing Asian currency in 2025, down nearly 5% for the year and more than 2% last month.

“The INR’s recent weakness has been driven by tepid portfolio inflows. The trade deal does offer medium-term positives for India through improved export competitiveness and reduced tariff uncertainty,” MUFG Bank said in a note.

The trade deal is expected to break a self-reinforcing cycle of hedging that has weighed on the rupee. Importers, bracing for prolonged currency weakness, had stepped up dollar purchases in the forward market, while exporters were reluctant to hedge, creating a demand-supply mismatch.

A senior treasury official at a private-sector bank said the removal of the tariff overhang could shift what had become a “psychological issue” for the currency.

With rupee depreciation expectations likely to cool, the imbalance between importer and exporter hedging is expected to narrow, helping set in motion a more virtuous cycle that will help rupee, he said.

A moderation in corporate hedging is expected to coincide with a pullback in speculative bets against the rupee.