US Trade Deal May Support Indian Rupee, Says Natixis

New Delhi/Hong Kong, February 5:

The Indian Rupee may get support in the near to medium term due to improving trade prospects with the United States. A possible rise in portfolio inflows toward India could also strengthen the currency. This was stated by Trinh Nguyen, Senior Economist for Emerging Markets at Natixis, based in Hong Kong.

Nguyen said investor sentiment toward India has started turning positive after a period of high volatility.

Rupee Shows Recovery After Sharp Volatility

Nguyen highlighted that the rupee had earlier weakened sharply to around 92 per US dollar. This happened even when the US dollar was falling globally. She called the rupee the weakest currency in Asia during that phase.

However, she said the situation has now changed.

“Yesterday, it turned out to be the best and appreciated very sharply. I think that the sentiment is shifting for India,” she said.

At the time of filing this report, the rupee traded at 90.374 per US dollar. It remained almost unchanged from the previous close. Still, it stayed well above its record low of 92.

Trade Deal Expected to Boost Export Income

Nguyen said the India-US trade deal could improve export income. As a result, it may provide stronger foreign exchange flows.

She believes this improvement can offer stable support to the rupee in coming months.

Portfolio Flows Could Shift Toward India

Along with trade support, Nguyen expects global capital to move toward Indian assets. She said the flow could include equities and bonds.

“I think another part of that equation is FDI and portfolio flows,” she added.

This shift can strengthen demand for Indian currency in global markets.

Net FDI Must Turn Positive, Says Expert

Nguyen also stressed the importance of foreign direct investment. She said gross FDI inflows remain positive. However, net FDI often turns neutral or negative due to repatriation.

“I think net FDI should be positive for India,” she said.
She also added that a country with strong potential should see reinvestment.

50% Tariff Shock Had Weighed on Rupee

Nguyen pointed out that the sudden imposition of a 50% tariff in 2025 by the US created a major shock. It negatively impacted the rupee and unsettled investors.

She said this burden is now easing.

“And I think that huge burden on the rupee is being lifted now,” she said.

Rupee May Not Rally Strongly, But Can Recover Losses

Nguyen does not expect the rupee to appreciate sharply against the US dollar. However, she believes it has room to recover some of its earlier losses.

“But I do think that there’s room for it to appreciate a bit and retrace a lot of the losses,” she said.

RBI May Hold Interest Rates to Attract Capital

On monetary policy, Nguyen said she does not expect the Reserve Bank of India (RBI) to cut rates immediately.

She added that stable interest rates will maintain a wide interest-rate differential between India and the US. This could help attract foreign capital.

“I actually think that they’ll hold on for now and just give that differential between the US and India to be quite wide enough to attract capital,” she said.