Rupee Surges 1.56% on US Trade Deal; Analysts Predict Further Gains

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AuthorAnanya Iyer|Published at:
Rupee Surges 1.56% on US Trade Deal; Analysts Predict Further Gains
Overview

The Indian rupee recorded its strongest daily gain in six years, soaring 1.56% against the US dollar following a new trade agreement. Analysts anticipate further appreciation, with predictions of the rupee reaching 88 per dollar by March, driven by reduced US tariffs and potential shifts in foreign investment flows. However, the path forward may include complexities related to oil imports and central bank intervention.

Rupee's Historic Rally Fueled by US Trade Accord

The Indian rupee marked its most significant intraday gain in six years on Tuesday, appreciating by 1.56% against the US dollar to reach 90.13. This surge followed the announcement of a trade agreement between India and the United States, a development that analysts expect will propel the currency even higher in the coming months.

Deal Details and Economic Outlook

While specific terms are still emerging, U.S. President Donald Trump indicated a reduction in tariffs on Indian goods from 25% to 18%, contingent on India ceasing its purchases of Russian oil. This move also reportedly removes an additional 25% duty previously applied to Russian oil imports. Market strategists foresee broad positive impacts, with VK Vijayakumar, Chief Investment Strategist at Geojit Investments, projecting growth to potentially reach 7.5% in FY2027, coupled with accelerated corporate earnings and a stronger rupee.

Analyst Projections and Potential Headwinds

HSBC analysts are optimistic, forecasting the rupee could strengthen to 88 per dollar by the end of March. They note the currency's current "slightly undervalued" status and anticipate a partial recovery driven by the U.S. tariff rollback, especially aligning with positive seasonal trends in India's balance of payments during the January-March quarter. However, the path may not be entirely smooth. HSBC cautioned that challenges such as swiftly diverting Russian oil supplies and the Reserve Bank of India's (RBI) unpredictable interventions in the foreign exchange market could introduce volatility.

Short-Term Rebound and Undervaluation Signals

Further supporting a near-term recovery, analysts at Elara Capital, cited by Bloomberg, expect the rupee to rebound toward 88.5-89 in the coming weeks. This optimism is partly based on anticipated reversals in foreign portfolio outflows. The rupee's real effective exchange rate is currently at its lowest point since 2014, signalling a significant undervaluation. HSBC's base case suggests the RBI might prioritize rupee recovery in Q1 FY26 before rebuilding forex reserves, with a USD-INR forecast of 90 by end-2026.

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