India’s trade deficit rose to USD 34.7bn in January. This was above the Bloomberg consensus of USD 25.4bn and up from USD 25.0bn in December. The increase was mainly due to a 349% surge in gold imports as global prices climbed.
Commerzbank says the deficit may narrow in the coming months. It points to support from the US-India trade deal and lower gold prices. Despite the larger deficit, the rupee has stayed steady.
The bank expects USD/INR to trade between 90.00 and 91.00 in the near term. It ties this view to slower portfolio outflows as sentiment improves after the US-India trade deal.
In early 2025, the trade deficit widened to $34.7bn in January because gold imports jumped. At the time, USD/INR was expected to settle into a 90.00 to 91.00 range. That range held for a few months, but conditions have changed since then.
As of February 20, 2026, USD/INR is trading near 92.50, well above the old range. India’s latest trade deficit, for January 2026, narrowed to about $28bn. Even so, broad US dollar strength is now the main driver. This follows the US Federal Reserve keeping interest rates higher for longer than many expected.
The optimism from the 2025 US-India trade deal has faded, and portfolio flows have turned negative this year. Foreign Portfolio Investors (FPIs) have withdrawn more than $2bn from Indian markets so far in 2026, putting pressure on the rupee. Policy expectations are also diverging: the Reserve Bank of India is signaling more focus on growth, while the Fed remains focused on inflation.
Given this setup, derivatives traders should expect higher volatility than in mid-2025. Buying straddles or strangles may work well if price swings pick up in the coming weeks. These strategies can profit from a move in either direction, which helps in an uncertain market.
For traders with a directional view, the easier path still looks like rupee weakness. Buying USD/INR call options or using bull call spreads would position for a move toward 93.00. These approaches offer upside exposure while limiting risk if the market reverses.
Still, the RBI has a track record of stepping in to limit sharp currency weakness. This suggests a new, higher trading range could form between 92.00 and 93.50. Selling out-of-the-money USD/INR put options with a strike near 92.00 could be a way to collect premium, based on the view that the central bank will defend that level.
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