Rupee has been in talks for quite some time on every news channel and analyst are holding negative outlook towards Rupee. Indian Rupee has been falling freely without any resistance breaking all records. It has depreciated more than 13 percent this year and analyst are looking at more depreciation from here. Why is Rupee depreciating and what can we expect from here?
Yesterday, Indian Rupee closed at 71.54 vs dollar and we didn’t see any positive movement this morning as well. It is trading in red and the fall is expected to continue. We can see Rupee trading at 73 in upcoming sessions. At current level, Rupee has become the worst performing Asian currency this year, breaking all records.
As per Finance mister, Arun Jaitley, “devaluation in Rupee is not attributable to domestic factors” (read here), then why is Rupee falling?
Major reason behind this fall are the CRUDE OIL prices. Crude Oil prices were seen trading at record high levels. We saw record breaking numbers last week due to concerns of low production. India imports 80% of its Crude Oil. The hike in the Oil prices in global markets, lead to higher expenditure, thus weaken our currency.
We saw Crude Oil prices achieving some level of stability this week and this could be beneficial for Rupee later this month but fundamentals for Crude, globally are strong and it is expected to trade higher.
Another reason that contributed to this fall was the import of gold in month of August. The Import of gold surge to eight –month high in August, around 11 million tonne. Read more here
There have been reports that India’s current account deficit have jumped to five year high, thus weaken the value of Rupee in the international market. Crude Oil prices did play a role here as well
Looking at emerging market currencies – we saw all emerging market currencies trading lower and breaking all resistance. Turkey Lira, Chinese Yuan, Mexican peso etc have been trading low. Not to forget the crisis in Argentina and Indonesia, which is majorly due to increase in duties by US on biodiesel. Overall, the trade issues and concerns globally are playing an important role in devaluation of Rupee.
Looking at current trade war between US-China, US-Russia, US-Iran, US-Turkey & US-Canada, geo-political tensions are spreading globally. This created a pressure on all emerging currencies. Trade wars have had quite negative impact on all economies and its affects will continue.
Looking at Dollar index, we see stability and strong growth and thus all currencies have been trading lower. US has been seen adding more jobs and their GDP number have been quite supportive towards Dollar index.
Currently, we haven’t seen much intervention from RBI and it has been working quite passively on this front.
All these factors have pushed Rupee to record lows. It will be advisable to buy Dollar for target for target of 72.45. Hopefully, we see some strong measures from RBI which could bring stability in falling Rupee
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