The Indian Rupee is becoming stronger this week. This event is primarily attributed to a breakthrough trade deal between the US and India.
Here is a quick breakdown of the current situation
US-India Trade Deal- The Big Win
President Donald Trump and Indian Prime Minister Narendra Modi earlier this week declared a huge deal to reduce tariffs on Indian goods.
The tariff on Indian exports to the US has decreased from 50% to 18%. This deal constitutes a truce over India’s procurement of Russian oil, which was previously subjected to additional penalties from the US.
This news led to a rally in the Indian stock market and pushed the Indian Rupee higher, with the USD/INR exchange rate dropping to 90.27.
Current Situation within Banks
Although this trade news is positive, the central banks are pursuing a wait-and-see approach. The Reserve Bank of India(RBI) is anticipated to keep its interest rates consistent at 5.25% this Friday. Although the inflation is low, the RBI wants to see if the previous rate cuts are strengthening the economy or not before moving further.
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Similarly, it is implausible that the Federal Reserve in the US will decrease the interest rates in March or April. The new Fed Chair, Kevin Warsh, is widely known for favouring a strong Dollar and higher rates despite President Trump’s expectations to lower them, as Trump publicly stated that he expects Warsh to eventually lower the interest rates.
Mixed Signs from Investors
Regardless of excitement over the trade deal, Foreign Big-money Investors (FII) are currently very cautious. On Wednesday, they only invested a trivial amount of money, i.e., ₹30 crore, into Indian stocks. However, if this attitude among investors persists, then the recent gains in the rupee will not last in the long run.
The “Tech” Side: What the Charts Say
Source: FXStreet
For those who believe in numbers, currently USD/INR is following a bearish trend, meaning that the Dollar is becoming weaker while the Rupee is becoming stronger. According to the chart, the experts believe that the exchange rate is expected to fall towards 89.50. But if the Dollar starts bouncing back, then it will face resistance at 91.00
Final Thoughts
The Indian Rupee is presently enjoying an optimistic ride driven by the landmark trade truce between the US and India, which has significantly decreased the cost of commencing business between the two nations. Nonetheless, this rally faces a reality check.
Although a steady RBI and a weaker US job market offer a supportive environment, the absence of aggressive buying from foreign investors remains a persistent challenge. To preserve the strength of the rupee near 90.00, there is a need to go beyond the political truce and ensure a consistent flow of global capital to return to the Dalal Street.
| Factor | Current Status | Impact on Rupee |
| US-India Trade | Tariffs cut from 50% to 18% | Positive (Strengthens Rupee) |
| RBI Policy | Rates expected to stay at 5.25% | Neutral (Stability) |
| US Jobs Data | Hiring was lower than expected | Positive (Weakens Dollar) |
| Foreign Investment | Subdued/Low recently | Negative (Risk to long-term) |
