India’s February flash PMIs showed that both services and manufacturing kept expanding. This growth was driven by demand at home and abroad. Hiring rose, and businesses felt more confident. Stronger overseas demand helped services, while manufacturing improved on stronger domestic demand after GST changes.
External demand for manufacturers may improve if a US trade deal cuts tariffs to 18% from 50%. Labour-intensive manufacturing could benefit the most, which may support jobs.
Even with strong PMI data, USD/INR rose 0.3% to 90.98 last Friday and gained 0.4% over the week. The INR was the weakest Asian currency year-to-date. This was linked to capital outflows and strong US dollar demand from importers.
Year-to-date, the INR was down 1.2% versus the US dollar. By comparison, Asian currencies excluding Japan were up an average of 0.6%. This piece was produced with the help of an AI tool and reviewed by an editor.
Around this time last year, we saw a clear gap: strong Indian PMI data did not help the Rupee. Capital outflows and heavy dollar buying from importers pushed USD/INR toward 91. The Rupee was also the weakest currency in Asia, even though the economy looked strong.
The story has changed since then, because the drivers of growth have started to show up in the data. Foreign portfolio investors have become net buyers of Indian equities. They brought in more than $5 billion over the last quarter, reversing the outflows seen in early 2025. This shift is backed by continued growth in manufacturing, with January’s PMI at a strong 57.5.
This steady strength suggests a possible strategy: sell out-of-the-money USD/INR call options to earn premium. With spot now near 88.50, sentiment has improved for the Rupee and implied volatility has fallen. That makes it more appealing to hold positions that benefit if the currency stays steady or strengthens slowly.
Still, traders should watch the steady dollar demand from commodity importers, which can set a floor under USD/INR. Brent crude holding around $85 a barrel keeps the import bill elevated, which can limit how fast the Rupee rises. This ongoing demand can stop USD/INR from falling too quickly.
Because of that, traders could look at strategies such as ratio spreads, or buying short-dated USD/INR put options, to target a gradual move lower. These approaches can benefit from the expected trend while limiting the risk of sudden, importer-driven dollar buying. It is also important to monitor Reserve Bank of India activity, since it can affect short-term currency moves.
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