Rupee sees best day in 6-years; analysts see more gains on US trade deal

The Indian rupee posted its strongest intraday session in nearly six years on Tuesday after India sealed the long-awaited trade deal with the United States (US). Analysts expect the currency to strengthen further in the coming months.

 

The currency opened 1.23 per cent higher at 90.39 level on Tuesday against the greenback, and rose as much as 90.13, or 1.56 per cent, the steepest gain since March 26, 2020. So far this year, the currency is down 0.28 per cent and has declined 5.17 per cent in the financial year to date.

 

The rupee’s gains come after India and the US reached a trade agreement following months of negotiations, although details of the pact are yet to be released. US President Donald Trump said he would lower his 25 per cent tariff on Indian goods to 18 per cent after India agreed to stop buying Russian oil.  The extra 25 per cent duty on the purchase of Russian oil will also be removed. 

 

The impact of the deal will be manifold, VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said. It could lift growth to about 7.5 per cent in the financial year 2027, accelerate corporate earnings and strengthen the rupee. 

 

According to HSBC analysts, the rupee may strengthen to 88 per dollar by the end of March as the US cut its tariffs on India. HSBC said that the Rupee is now "slightly undervalued" and can therefore partially recover if there is a rollback in US tariffs, especially if the reprieve coincides with "positive seasonality" in India’s balance of payments in the January-March quarter. 

 

However, the rupee might not have a smooth ride, the global brokerage said. "There could be hiccups along the way with this trade agreement – for example, it may not be easy for India to divert its Russian oil purchases quickly," with the central bank's forex policy likely to "complicate things." The Reserve Bank of India (RBI) has been intervening in a rather unpredictable way over the past few months to prevent one-sided speculative positioning in the currency, it added. 

 

But HSCB's base case is that the RBI allows the rupee to recover first in frist quarter of FY26, before rebuilding forex reserves. It's end-2026 forecast for USD-INR is 90.

 

Meanwhile, the rupee is expected to rebound back toward 88.5-89 to a dollar in the coming weeks, with foreign portfolio inflows set to reverse course after large outflows, Bloomberg reported, quoting analysts at Elara Capital. The real effective exchange rate - based valuation is at lowest since 2014, indicating the rupee is undervalued, it added. 

 

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