EXPLAINER | Rupee at record low: Can India-US trade deal spark a meaningful rebound?

The Indian rupee continues to slide to unprecedented levels despite a weakening US dollar globally, underlining how domestic and bilateral concerns are overpowering broader currency trends. On Friday, December 12, the rupee touched a new intraday low of 90.56 against the dollar, before closing slightly higher at 90.49, still marking a sharp depreciation of 17 paise on the day. What makes the move striking is the global context: the US dollar index has retreated to a two-month low, weighed down by softer American macroeconomic data and a recent rate cut by the US Federal Reserve. Ordinarily, such conditions would offer relief to emerging-market currencies. Instead, the rupee’s divergence reflects rising investor unease over India-specific factors, most notably the lack of clarity on an India-US trade agreement and persistent foreign portfolio investor (FPI) outflows. Overseas investors have withdrawn nearly ₹18,000 crore from Indian markets so far in December, taking total net outflows for the year to over ₹1.6 lakh crore, according to NSDL data. This steady capital flight has kept the rupee under pressure even as domestic fundamentals remain relatively stable, highlighting how sentiment and uncertainty can outweigh macro resilience in currency markets.

Trade negotiations between New Delhi and Washington have increasingly become a focal point for currency traders. India and the US concluded another round of discussions this week, exchanging views on market access, tariffs and the contours of a proposed bilateral trade deal. Prime Minister Narendra Modi and US President Donald Trump also spoke by phone, signalling political intent to sustain momentum in economic ties. Yet, markets have heard similar assurances before, and the absence of a definitive announcement has tempered optimism. Analysts say expectations around tariff rationalisation and improved export competitiveness were already priced in, leaving the rupee vulnerable to disappointment. According to Harshal Dasani of INVAsset PMS, the rupee’s weakness is less about a resurgent dollar and more about unresolved India-specific uncertainties. Reuters data show the dollar index is down over 9 per cent this year, on course for its steepest annual decline since 2017, making the rupee’s underperformance even more pronounced. This disconnect — a softer global dollar alongside a falling rupee — reflects how trade-deal ambiguity is disproportionately influencing USD-INR. Until investors see clarity on tariff lines, supply-chain alignment and actual gains for Indian exports, risk sentiment is likely to remain fragile, keeping pressure on the currency.

The outlook now hinges on whether negotiations yield a credible and market-friendly outcome. Bank of America notes that the rupee remains highly sensitive to portfolio flows, which are themselves influenced by trade policy and tariff visibility. A well-structured deal that lowers trade barriers could help revive equity inflows and stabilise the currency, especially if accompanied by a pickup in growth momentum next year. However, analysts caution that a weak or delayed agreement could deepen concerns around prolonged tariff exposure, potentially extending the current foreign investor exodus. Riya Singh of Emkay Global Financial Services warns that in the absence of a clear catalyst, USD-INR is likely to remain biased higher. She points out that the Reserve Bank of India has so far limited its intervention to smoothing volatility rather than defending any specific exchange-rate level. While a positive surprise from trade talks or an improvement in global risk appetite could see the rupee recover toward the 89.80–89.60 range, failure on either front may push the pair back toward recent highs near 90.80, with risks extending to 91.50–92.00 in the weeks ahead. Bank of America remains relatively optimistic over the medium term, forecasting the rupee to strengthen to around 86 per dollar by end-2026, supported by anticipated dollar weakness and seasonal tailwinds. For now, however, the rupee remains caught between global relief and local uncertainty — a reminder that currency markets reward clarity far more than intent.