Aniket PujariUSD vs INR: The Indian rupee is languishing at record lows even as the US dollar index dropped to its lowest level in two months, as traders remained concerned about the lack of an India-US trade deal and strong foreign investor outflows.
The rupee fell to a record intraday low of 90.56 against the greenback on Friday, December 12, registering a fall of 24 paise from its previous close. At close, the rupee was at 90.49, down 17 paise.
Meanwhile, the relentless selling by the foreign portfolio investors (FPIs) shows no signs of a slowdown. In December alone, FPI outflows have reached ₹17,955 crore so far. The yearly selloff has risen to ₹161,630 crore, according to data from NSDL.
On the deal front, India and the US on Thursday concluded two days of talks, during which both sides exchanged views on trade-related issues, including the ongoing negotiations for a mutually beneficial bilateral trade agreement, according to a PTI report.
Prime Minister Narendra Modi and US President Donald Trump on Thursday discussed ways to sustain momentum in the bilateral economic partnership in a phone conversation amid signs of the two sides inching closer to firming up a much-awaited trade deal.
With promises of a trade deal soon, the question remains: Can it spark a meaningful upside in the Indian rupee?
Will India-US trade deal spark rupee rebound?
Harshal Dasani, Business Head, INVAsset PMS, said the new low for the rupee is less about broad dollar strength and more about India-specific uncertainty. The dollar index has eased from its recent highs after the Fed’s rate cut and softer US macro prints, indicating that global dollar momentum is actually weakening.
According to Reuters data, for the month of December, the greenback has been 1.1% weaker so far. The index was also down more than 9% this year, on pace for its steepest annual drop since 2017.
Markets had priced in progress on tariff rationalisation and greater market access, but the lack of a clear announcement has created a temporary overhang on sentiment, said Dasani, adding that this divergence — a softer global dollar but a weaker rupee — highlights how deal-related uncertainty is disproportionately affecting USDINR.
He, along with other analysts, expects a meaningful correction in USDINR as clarity on tariff lines, supply-chain alignment, and export competitiveness improves.
Analysts at BofA said that the Indian rupee remains dependent on portfolio flows, partly driven by tariffs. “Finalisation of trade deal, expected to reduce the tariffs, would be important in reducing uncertainty for equity investors. Further pick-up in growth momentum would be another key factor for next year, which may support corporate earnings and ease equity valuation concerns,” it added.
However, amid lack of a clear outcome despite months of negotiation also poses the risk of the deal either remaining elusive or missing expectations. In such a scenario, Riya Singh, Research Analyst, Commodities and Currency, Emkay Global Financial Services, a weak deal would reinforce market concerns around prolonged tariff exposure and may extend the current foreign investor exit, especially given December’s equity outflows of ₹18,000 crore-plus.
In such a scenario, USDINR is likely to stay biased higher, as the lack of clarity keeps risk sentiment subdued, she added.
Rupee key levels to watch
Against the current backdrop, Singh expects the near-term trend to remain skewed toward further weakness.
“The central bank has intervened only to smooth volatility, not to defend any specific level. If global risk appetite stabilises and the trade talks deliver a positive surprise, the rupee could retrace toward 89.80–89.60. However, in the absence of a clear catalyst, the pair is more likely to test the recent peak near 90.80, with scope to extend towards 91.50 – 92.00 over the coming weeks,” she cautioned.
Meanwhile, global brokerage BofA, sharing a more upbeat outlook for the rupee, believe USD weakness next year would still support mild appreciation, and that could pick up pace around the seasonally favourable Q1 for the rupee. It forecasts the rupee to reach 86/USD by end-2026, in line with USD weakness next year.
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