USD is trading at another high.. and we are saying this almost everyday for last few days… After trading steadily at around Rs 63- Rs. 65 till March 2018, USD is appreciating and INR is depreciating for various reasons almost everyday. The combined result is – Rupee falling steadily towards Rs 68 + in a short span of 2-3 months. Yesterday, it touched as high as Rs. 68.43 per USD (Ref: Bloomberg). This was the lowest closing for the Indian currency since November 29, 2016, when it had ended at 68.65 a dollar
Source- Bloomberg
What’s happening?
Predominantly, the current INR depreciation was attributed to overall Asian Currency’s depreciation against dollar. US dollar yields were rising continuously and that boosted the dollar against other major currencies. Rising US 10-year Treasury coupled with a solid rise in US retail sales, suggested that USA is getting stronger footing going forward.
At the same time, sentiments about Indian markets were sour too. India’s inflation numbers (retail and wholesale) were accelerated.
Globally increasing crude prices is another important factor contributing to this. India imports bulk of its oil needs. (Almost 80%). Increasing oil prices, lead to more dollar outflow to buy oil. And eventually, pushes dollar higher. Rising crude prices also increase fuel and food prices in India. This leads to increase in inflation and widens the Trade deficit of India.
Indian economic scenario, coupled with stock market expectations, leads foreign investors to pull their investments made in India. According to some sources, foreign investors have pulled $3.3 billion from Indian bonds this year, adding to the relentless selling by state-owned lenders. These outflows from domestic capital markets also contributed to the rupee’s depreciation.
Where is dollar heading?
The obvious question is : where is the USD/INR heading?
An expert from IFA Global said, “The current bout of rupee weakness does not just seem like a passing phase. The inflation dynamics have changed. India is vulnerable to rising crude prices”. There are views that the dollar might hit Rs 70 mark.
However, there are many other factors that can delay this rupee depreciation if not reverse it. One important is RBI intervention. Many times it has been seen that RBI counteracts the market action and cools the currency pressure. Selling by exporters can cool the buying pressure. Further, many significant FII deals where FIIs are investing in Indian businesses will add to the inflows of USD and reduce the falling rupee pressure. However, the impact of these actions are relatively mild and not very long lasting.
The long-lasting impact on the currency will come from steady positive sentiments of Asian markets including Indian economy; or some negative action (like war etc) or negative sentiments (like negative economic data or news) of USA.
Steady or reducing crude prices will certainly be in favour of appreciating Rupee.
Looking at the current scenario and outlook of events concerning currency markets, Rupee hitting 70 cannot be denied. However, in my opinion, the falling rupee will not be as steep as witnessed. The rupee might fall towards the big number of 70 but after lingering around 67-69 levels for some more time.
Why should a Common man be concerned?
In general, a common man doesn’t worry about exchange rates until he travels. However, a rising dollar rupee rate is affecting a common man in many ways:
- Higher dollar makes imports costly. Since India is a large importer of Oil and other necessity items, it also affects the common man.
- This increases food , oil and gas prices eventually increasing inflation
- The branded imported consumer items will be costly
- All this eventually lowers the standard of living
- A strong dollar and weak rupee also impacts stock market negatively as foreign investors invest less in the Indian stocks.
- A strong dollar price might be good for exporters to bring in money at higher rates and rank higher profits.
- Rising dollar rates will make your / your relatives foreign education costly.
- Last but not the least, this will determine your expenses in your travel abroad.
So be watchful and be informed about the global currency markets. Lets see if and when Rupee touches 70 a dollar.
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