Rupee Rallies 125 Paise to 90.27 Per Dollar on India-US Trade Deal

Mumbai: The Indian rupee on Tuesday posted its best single day rally since December 2018, registering a gain of 122 paise to settle at 90.27 against the US dollar, after India and the US agreed to a trade deal that slashed US tariffs on Indian goods. The punitive 50 per cent US tariffs on Indian goods had resulted in a 5 per cent slump in the Indian rupee since late August. The rollback materially improves India’s trade outlook and capital flow dynamics, said traders. Custodian banks were the main dollar sellers while the RBI was buying dollars to protect the rupee from steep appreciation to help exporters.

At the interbank foreign exchange market, the rupee opened at 90.40 against the US dollar, then gained some ground to touch an intraday high of 90.04 and a low of 90.51 against the greenback. At the end of the trading session on Tuesday, the rupee was quoted at 90.26 against the greenback, registering a gain of 125 paise from its previous close. The rupee had gained 47 paise to close at 91.51 against the US dollar on Monday, a day after the Union Budget 2026-27 was presented. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.05 per cent lower at 97.57.

Anindya Banerjee, head currency and commodity research at Kotak Securities said, "The recent trade agreement and tariff reduction to 18 per cent opens the door for modest appreciation, but the pace and extent will depend on RBI intervention thresholds, given the priority of maintaining export competitiveness."

"Foreign inflows may improve at the margin, though a sharp shift is unlikely as global investors remain focused on AI, quantum, memory, and data-center themes," added Banerjee.

India and the United States have agreed to a trade agreement under which reciprocal tariffs on Indian goods will be slashed to 18 per cent from 50 per cent with a commitment from India to increase US imports by $500 billion, and a reduction in dependence on Russian oil.

At 18 per cent, India's tariff rate is now lower than that of several major export-oriented Asian economies. Bangladesh, Sri Lanka, Taiwan and Vietnam face tariffs of 20 per cent, while Indonesia, Malaysia, Thailand, the Philippines, Cambodia and Pakistan face tariffs of 19 per cent.

Abhishek Goenka, founder and chief executive

officer at IFA Global said, "On real effective exchange rate valuation, we estimate the rupee’s fair value closer to 88, suggesting further appreciation potential over the next one to 1.5 months, though the move is likely to be gradual and volatile. The RBI may intervene intermittently to smooth excessive moves."

"Equity markets have reacted strongly to the improved fundamentals, with Nifty up 6 per cent and Sensex up 5 per cent, supporting the case for sustained FII inflows, which remain critical for rupee stability and further strength," added Goenka.

Dollar-rupee forward premiums, which capture the cost of hedging against further rupee weakness, dipped across tenors. The 1-month forward premium dropped to 1.90 per cent (its lowest level since September 2025) while the one-year premium has fallen to 2.48 per cent.