It’s celebration time across asset classes after the US President Donald Trump announces easing tariffs on India. The currency market is no exception. The rupee jumps over 1% in early trade.
This marks a significant stabilisation for the currency, which had been trading near the 91 level. On January 30, the rupee had touched an all-time low of 91.98 in the spot onshore (Indian) market.
Anindya Banerjee, Head Currency and Commodity Research, Kotak Securities said that, “The Indian Rupee has been among the weakest currencies in Asia ever since trade frictions intensified between India and the US. In any trade war, currency is a silent but powerful weapon—used to shield the external sector and manage competitiveness.”
He added that “when inflation is low, this weapon becomes even more effective, as the pass-through of imported inflation to domestic consumption remains limited. In that sense, one can argue that the Rupee has been trading with a “fear discount” or deep valuation discount.”
Can the rupee scale higher now?
Does this mean the Rupee can now appreciate meaningfully after the announcement of the new trade deal and a reduction in tariffs to 18%?
Kotak Securities’ Anindya Banerjee believes that the “answer largely depends on the RBI—specifically, how much appreciation it is willing to tolerate without intervening to preserve export competitiveness.
From an FPI flow perspective, some incremental inflows into Indian capital markets are possible. However, a large or sustained shift is unlikely in the near term, as global speculators continue to chase hot themes such as AI, quantum computing, memory, and data-center investments.” Banerjee said.
According to him, “the next meaningful trigger for the Rupee is likely to emerge only when global trade begins to shift more decisively away from the US Dollar—driven by a growing web of bilateral trade agreements and potential interlinking of digital payment networks with partner nations.That, however, remains a medium- to long-term structural theme, not an immediate catalyst.”
Outlook for Rupee
He sees the near-term support for the rupee at 90/$ followed by 89.30/$. Resistance for the currency is seen at 91/$ followed by 91.50/$.