Rupee and Asian Currencies: Swaying to US Tariff News Flow

As the US continues to impose tariffs on key trading partners, the global currency market remains in a state of flux. The Rupee, alongside its Asian peers, has been particularly susceptible to US tariff news flow, with significant implications for investors and traders alike. In this article, we will explore the specific trade dynamics and economic factors that make the Rupee and other Asian currencies vulnerable to US tariff announcements, and how retaliatory measures from affected nations impact the broader Asian currency landscape.



US Tariffs and Asian Currency Volatility

The US's aggressive trade policies, including tariffs on China, Mexico, and Canada, have led to shifts in global supply chains and increased forex market volatility. For instance, the Trump administration's imposition of a 25% tariff on imports from Canada and Mexico, and a 10% tariff on Chinese imports, has caused significant volatility in the foreign exchange market (Source: Benzinga). This uncertainty has led to increased volatility in the Rupee's valuation and other Asian currencies.

Dependence on US Trade and Capital Outflows

Many Asian countries, including India, rely heavily on trade with the US. In 2024, India's exports to the US were valued at around $85 billion, making the US its second-largest export destination (Source: J.P. Morgan). This dependence makes Asian currencies sensitive to US trade policies and tariff news flow. Additionally, a falling interest rate differential between India and the US has resulted in capital outflows, contributing to the depreciation of the Rupee (Source: Dipanwita Mazumdar, Economist, Bank of Baroda).

Shift in Exports and Inflationary Pressures

While a weakening Rupee may not necessarily boost India's merchandise exports, it could make Indian labor, land, and capital relatively cheaper, attracting businesses to India. However, this effect may be offset by global economic challenges and geopolitical resolutions affecting the US dollar (Source: Nilanjan Banik). Furthermore, a depreciating Rupee can lead to higher import costs, fueling domestic inflation. In January 2025, the Rupee recorded its sharpest single-day decline in nearly two years, finishing at a historic low of ₹86.62 against the dollar (Source: Nilanjan Banik).



Retaliatory Measures and Geopolitical Risks

Retaliatory measures from affected nations, such as China, Mexico, and Canada, can have significant impacts on the Rupee's trajectory and the broader Asian currency landscape. These measures can escalate trade tensions, leading to increased uncertainty and volatility in the forex market. This can result in a depreciation of the Rupee and other Asian currencies against the US dollar, as investors seek the safety of the greenback (Source: Bloomberg, Asian currencies weakened sharply Monday as the U.S. Dollar rallied after U.S. President Donald Trump slapped tariffs on several countries over the weekend). Retaliatory measures can also lead to shifts in trade flows, impacting India's trade balance and affecting the Rupee's trajectory. Additionally, retaliatory measures can increase geopolitical risks, which can further impact the Rupee's trajectory and the broader Asian currency landscape.

In conclusion, the Rupee and other Asian currencies are susceptible to US tariff news flow due to specific trade dynamics and economic factors, such as dependence on US trade, capital outflows, and shifts in exports. Retaliatory measures from affected nations can also have significant impacts on the Rupee's trajectory and the broader Asian currency landscape, including increased trade tensions and volatility, shifts in trade flows, impacts on other Asian currencies, and increased geopolitical risks. Investors and traders should remain vigilant and adapt their strategies accordingly to navigate the ever-changing currency landscape shaped by US tariff policies.