Following the reduction in tariffs and a potential shift of portfolio flows towards India, the Indian Rupee is likely to find support in the near to medium term from improving trade prospects with the US, as per Trinh Nguyen, Senior Economist for Emerging Markets at Natixis based in Hong Kong.
Nguyen stated that sentiment toward India has started to move more constructively after a phase of intense volatility, during which the rupee briefly slid to about 92 per dollar, even as the US dollar was weakening globally. “If you look at the rupee, it was depreciating to 92 to a dollar against the picture where the dollar was depreciating — it was the worst FX in Asia. Yesterday, it turned out to be the best and was appreciated very sharply. I think that the sentiment is shifting for India,” Nguyen said, news agency ANI reported.
Nguyen said the improvement was partly driven by expectations that a potential India–US trade agreement could lift export earnings and strengthen foreign exchange inflows. She added that this could be further supported by increased global capital allocation to Indian equities and bonds.
“I think that this trade deal will allow it to have more export income, and as a result, will provide more support,” she said. “And I think another part of that equation, of course, is FDI and portfolio flows.”
Inflows of FDI
Beyond short-term flows, Nguyen underscored the importance of ups and downs in foreign direct investment. The inflows of the gross FDI into India remain positive; however, net FDI has frequently been neutral or even negative, reflecting fund repatriation. “I think net FDI should be positive for India,” Nguyen said. “Because if it’s a country with a lot of potential, it should be reinvested.”
She also argued that recent progress in the rupee has lifted a massive burden on the currency. The rupee weighed heavily when the US imposed a 50 per cent tariff in 2025, unsettling both investors and policymakers. “Much of the challenge for India is really this drag. Suddenly it just kind of faces that 50 per cent tariff, which is a big shock, to be honest, for everybody,” she said. “And I think that huge burden on the rupee is being lifted (now).”
Although Nguyen does not foresee a steep or prolonged rise in the rupee against the US dollar, she said the currency could regain some of its previous losses and settle at firmer levels. “Will it appreciate significantly against the dollar? I don’t think so,” she said. “But I do think that there’s room for it to appreciate a bit and kind of retrace a lot of the losses.”
Commenting on monetary policy, Nguyen noted that she does not anticipate an immediate interest rate cut by the Reserve Bank of India, even though economic conditions remain manageable. She added that maintaining current rates would keep the interest-rate gap between India and the US relatively wide, which could continue to draw foreign investment.
Indian Rupee Outlook & India–US Trade – FAQs
1. Why is the Indian Rupee expected to find support soon?
The rupee is likely to gain support due to improving trade prospects with the US, reduced tariff pressures, and stronger foreign capital inflows.
2. Who shared this outlook on the Indian Rupee?
The views were shared by Trinh Nguyen, Senior Economist for Emerging Markets at Natixis, based in Hong Kong.
3. How did the rupee perform recently against the US dollar?
The rupee had briefly weakened to around 92 per dollar, but later rebounded sharply and emerged as one of the best-performing Asian currencies.
4. Why was the rupee weakening despite a softer US dollar?
During that period, India faced domestic and external uncertainties, making the rupee the weakest currency in Asia despite global dollar weakness.
5. What has changed in market sentiment toward India?
Investor sentiment has turned more constructive after a phase of high volatility, with renewed confidence in India’s economic and trade outlook.
6. How could an India–US trade deal support the rupee?
A trade agreement could boost export earnings, improve trade balances, and strengthen foreign exchange inflows into India.
7. What role do portfolio flows play in supporting the rupee?
Increased global allocation to Indian equities and bonds can strengthen the rupee by raising demand for the currency.
8. How important is FDI for the Indian Rupee?
Foreign Direct Investment is crucial, as long-term capital inflows provide stability beyond short-term portfolio movements.
9. What is the current trend in FDI inflows to India?
While gross FDI inflows remain positive, net FDI has often been flat or negative due to repatriation of funds.
10. Why should net FDI be positive for India?
As a high-growth economy, India should ideally see reinvestment of capital, reflecting long-term confidence in its prospects.
11. How did US tariffs impact the rupee earlier?
The rupee faced significant pressure after the US imposed a 50% tariff in 2025, creating uncertainty for investors and policymakers.
12. Is the tariff burden on India easing now?
Yes, Nguyen believes that the drag caused by high tariffs is being lifted, which is easing pressure on the rupee.
13. Will the Indian Rupee appreciate sharply against the dollar?
No, a sharp or sustained appreciation is unlikely, but moderate gains are expected.
14. Can the rupee recover some of its past losses?
Yes, the rupee has room to retrace a portion of its earlier losses and settle at firmer levels.
15. What is the near-to-medium-term outlook for the rupee?
The outlook is cautiously positive, supported by trade optimism, capital inflows, and stabilising sentiment.
16. Is the RBI expected to cut interest rates soon?
Nguyen does not expect an immediate interest rate cut by the Reserve Bank of India.
17. Why is holding interest rates important right now?
Maintaining current rates keeps the interest-rate gap between India and the US wide, which attracts foreign investors.
18. How does the interest-rate gap affect foreign investment?
A wider rate gap makes Indian assets more attractive, encouraging capital inflows and supporting the rupee.
19. What are the key drivers supporting the rupee now?
Trade optimism, easing tariff pressures, portfolio inflows, and potential improvement in FDI trends.
20. What is the biggest risk to the rupee going forward?
Global volatility, sudden capital outflows, or delays in trade agreements could limit gains, even as the outlook improves.
