Over the last few days, the Indian Rupee (INR) has been depreciating against the Dollar (USD). The Rupee dropped to a fresh low against the Dollar to an exchange of Rs 84.38 on Thursday.
This depreciation against the Dollar in recent days following Trump’s election victory, as expectations rise that his policies may further strengthen the dollar index.
Few market experts with whom THE WEEK spoke feel that given the resilience of the Indian economy, this rupee dip appears temporary and will appreciate in the days to come, and some of them say that it will be a while before the Rupee heads back.
“Adding to our economy’s strength, the Fed’s past two interest cuts will bring a gradual increase in dollar supply which could support the Rupee’s recovery. However, it’s crucial to closely monitor Trump’s proposed trade policies, such as imposing tariffs of 10 per cent or more on all US imports and potential hikes on Chinese imports, to assess their long-term effects on the Rupee,” remarked Edul Patel, Co-founder and CEO of Mudrex.
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Experts feel that the Rupee has hit fresh record lows over the past few sessions due to a host of domestic and global factors. Many feel that the Rupee may continue to remain weak over the near term. “We expect the US Dollar index to strengthen further on growth optimism over Donald Trump’s victory in the US Presidential elections as his pro-growth stance has to be funded by enhanced borrowings, leading to further weakness in the US bonds. As the US bond yields are likely to rise further on Trump’s win, it may be negative for the domestic currency,” Anuj Choudhary, research analyst at Sharekhan by BNP Paribas, told THE WEEK.
He remarked that the emerging market currencies are vulnerable. The Chinese economy is also not performing that well, which has led to weakness in the Yuan. This may strengthen the Dollar further and weigh on risk currencies such as the Rupee. “Unless China announces a huge stimulus that may impress the markets/investors, we do not expect the Yuan to recover. In fact, if Trump hikes tariffs on imports from China, the Yuan may need to be devalued further to make Chinese exports competitive. This would again be negative for the Rupee,” added Choudhary.
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This expert is of the opinion that the domestic economy is not faring too well either. There have been huge FII outflows over the past couple of months. If the trend continues, further foreign outflows can be seen, which could lead to higher demand for the Dollar. India’s CPI rose to 5.49 per cent in September, overshooting RBI’s target of 4 per cent for market expectations of 5 per cent. RBI has projected India’s inflation for FY25 at 4.5 per cent, despite concerns over inflation. Rising food inflation may also continue to mount pressure on the Rupee.
Interestingly, in his speech, Donald Trump said that he was going to stop all wars. In such a case, there could be some cooling off in commodity prices, and the risk premium would decline.
“A decline in crude oil prices would benefit the Rupee as it is the biggest contributor to India’s import bill. This may support the Rupee at lower levels. Any fresh foreign inflows amid improved global risk sentiments may also support the Rupee at lower levels. The Indian bonds may get support from India’s bonds inclusion in the FTSE Russell’s major global bond Index next year. FOMC rate cuts and the possibility of the RBI cutting rates in December or January may limit the downside in the Indian bonds, which may support the Rupee. In the near term, we expect the Indian Rupee to trade in the range of 84 or 83.80 on the lower side. On the higher side, we expect the Rupee to test at 84.80 or 85 levels. The trend is bearish for the domestic currency,” explained Choudhary.
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The recent all-time low of the Rupee against the Dollar reflects global uncertainties, but strategic developments could alter the outlook. It is expected that the Rupee will remain under pressure in the short term until more clarity emerges on the geopolitical and global trade landscape; however, the medium-term outlook looks positive. With Donald Trump winning the US election for a second time, his historically positive relationship with India could play a vital role in supporting the Indian currency. “Trump’s administration previously promoted pro-India policies that strengthened trade and investment ties, and this established rapport could foster more favourable trade terms, boost bilateral investments, and potentially stabilize foreign inflows into India. Such an alignment would benefit both markets, as stronger economic cooperation could attract investment, drive trade, and support broader financial stability,” Rohit Beri, the CEO and CIO of ArthAlpha.
This expert adds that for India, this could mean a bolstered rupee as more US–India trade and investment flows in. Meanwhile, the US could gain from a stable partner in India, with growth-driven collaboration across technology, manufacturing, and energy. “The positive economic cycle generated could lead to job creation, market expansion, and innovation sharing, setting up a strong foundation for the future of both economies,” remarked Beri.
