The Aryavarth Express
New Delhi/Hong Kong: The Indian rupee is likely to find stronger footing in the coming months as trade prospects with the United States improve following the recently agreed tariff reductions, according to Trinh Nguyen, Senior Economist for Emerging Markets at Natixis.
Nguyen, speaking from Hong Kong, said market sentiment toward India has started to become more positive after a period of heightened volatility—during which the rupee weakened to around ₹92 per US dollar despite a weakening US dollar globally.
“At one point the rupee was the worst-performing currency in Asia,” she noted, pointing to the sharp depreciation before the trade deal took shape.
At the time of the interview, the rupee was trading near ₹90.37 per dollar, stabilizing from its earlier lows. Nguyen attributed this shift partly to market expectations that the trade deal will increase India’s export earnings and improve foreign exchange inflows.
Trade Deal’s Role in Supporting the Currency
Under the new arrangement, tariffs between the two countries have been significantly reduced, easing a major source of policy uncertainty that had weighed on the rupee and investor confidence. Nguyen said the prospect of higher export income could be a meaningful source of foreign currency, providing a cushion for the rupee.
She also highlighted the potential for a broader reallocation of global capital into Indian assets, including both equities and bonds, which could further support the currency’s performance.
Portfolio and Direct Investment Outlook
Nguyen expressed optimism about portfolio flows, saying that a shift toward Indian equities and debt could strengthen the rupee’s near-term outlook. She also discussed foreign direct investment (FDI), noting that while gross inflows remain positive, net FDI has often been neutral or negative due to profit repatriation. She believes stronger reinvestment of foreign earnings would benefit the economy.
Rupee Appreciation Expectations
Despite this positive outlook, Nguyen cautioned that the rupee is not likely to appreciate sharply or sustain large gains immediately. Rather, she sees room for the currency to recover some of its recent losses and trade in line with economic fundamentals.
On monetary policy, she expects the Reserve Bank of India (RBI) to hold interest rates steady in the near term. A stable rate environment would help maintain a favorable yield differential between Indian assets and those in the United States, potentially attracting more capital.
Nguyen concluded by saying she remains constructive on the rupee, believing that the combination of trade improvements and capital flows could underpin a steadier currency trajectory going forward.
