India's rupee has staged a dramatic turnaround, surging nearly 1.3% in offshore trading after President Trump and PM Modi unveiled a pivotal trade deal on February 2, 2026. This breakthrough ends months of tariff escalation, shifting the narrative from relentless depreciation to policy-driven relief and renewed investor optimism.

Deal Terms: Tariff Cuts and Energy Pivot

The agreement slashes the US baseline tariff on Indian goods from 25% to 18% immediately, while dropping a separate 25% levy tied to India's Russian oil imports. In exchange, India commits to halting Russian crude purchases-over one-third of its supply-and ramping up US energy, tech, and agri imports beyond $500 billion.

This resolves a key flashpoint: Trump's prior 50% punitive duties on Indian exports, Asia's highest, which stemmed from New Delhi's discounted Russian oil buys amid the Ukraine conflict. Implementation includes a transition for refiners to redirect shipments, easing short-term supply risks.

FX Reaction: Snapping the Downward Cycle

The rupee, Asia's weakest currency in 2025 with a 5% drop to near 92/USD, jumped to 90.15-90.25 in one-month NDFs from 91.51-a 90-paise gain signaling eased dollar demand. This breaks a vicious loop: importers' heavy forward buying amid hedging frenzy, exporters' delays, and $17.5B record FPI outflows.

RBI interventions had defended 92/USD, but the deal removes "psychological" tariff overhang, boosting sentiment and positioning for inflows. GIFT Nifty soared 800 points, pointing to equity gains in export sectors like IT, pharma, and autos.

Investor Strategy Angles

Short-term trades: Fade rupee shorts; target 89.50-90.00 with Nifty calls on trade relief. Exporters gain margins; watch IT/pharma for 5-10% pops.

Portfolio resets: Allocate to large-cap indices (Nifty 50 SIPs) for volatility buffer; multi-asset funds blending equity, gold, debt hedge residual FX swings. Reduce pure dollar hedges as trade deficit narrows.

Longer horizon: Eye US energy pivot's cost (higher crude prices vs. cheap Russian) but upside from tariff-free US access. Defensive plays: liquid funds for 6-month buffers amid transition volatility.

This reset positions 2026 as a rupee stabilization story, blending RBI flexibility with global rebalancing-ideal for traders eyeing policy tailwinds over macro storms.