Will the India-US trade deal boost the rupee? The currency will improve!

The Indian rupee remains at a record low, while the US dollar index has fallen to its lowest level in two months. This is because traders are uncertain about the India-US trade deal and are worried about heavy selling by foreign investors. 

On Friday, December 12, the rupee fell to a record intraday low of 90.56 against the dollar, down 24 paise from its previous close. At the close, the rupee was at 90.49, a decline of 17 paise. 

While there are many reasons behind the rupee's decline, the most talked about reason is the India-US trade deal. Let's understand in this news: If a deal is reached between India and the US, will the rupee make a comeback?

Amid the rupee's decline, foreign investors are also leaving the stock market. The continuous selling by foreign portfolio investors (FPIs) shows no signs of stopping. 

In December alone, FPI outflows have reached ₹17,955 crore. According to NSDL data, total selling for the entire year has risen to ₹161,630 crore. According to a PTI report, India and the US concluded two days of trade negotiations on Thursday. 

During the talks, the two countries discussed trade-related issues, including ongoing negotiations for a mutually beneficial bilateral trade deal.

Will the India-US trade deal boost the rupee?

In a Mint report, Harshal Dasani, Business Head at INVAsset PMS, said that the rupee's new low is due more to uncertainties related to India than to the dollar's strength. 

Following the Fed's interest rate cut and weak US economic data, the dollar index has fallen below its recent highs. This clearly indicates that the dollar's strength is weakening globally.

According to Reuters data, the dollar has weakened 1.1% so far in December. The dollar index has fallen more than 9% this year and is headed for its biggest annual decline since 2017. 

Dasani said the market had already factored in expectations such as tariff changes and greater market access, but the lack of any clear announcement has temporarily weighed on investor sentiment. 

He said the weak global dollar, while the rupee remains weak, reflects how uncertainty surrounding a trade deal is impacting the USD-INR.

Attitude of foreign investors

However, with no concrete results after months of negotiations, there remains a risk that the deal could either fall short or fail to meet expectations. 

Riya Singh, commodity and currency research analyst at Emkay Global Financial Services, said a weak deal could keep the threat of tariffs alive for a long time and increase market concerns. This could accelerate the current outflow of foreign investors.