The Indian rupee is facing tough competition from the US dollar in the currency markets this week. The INR fell to a low of 83.63 on Friday against the USD raising concerns about the weakness of the local currency.
However, the rupee recovered slightly on Monday’s opening bell and covered its lost ground reaching 83.50 against the US dollar. In this article, we will discuss the combination of factors that made the rupee dip against the stronger US dollar.
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Currency: The Indian Rupee Loses Balance Against a Strong US Dollar
Source: Bloomberg
Despite India’s strong economic growth in GDP, the rupee failed to outperform the US dollar in the currency markets. The primary reason why the Indian rupee dipped is because of equity outflows and corporate demand for the US dollar.
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India’s stock market, the Sensex and Nifty ended Friday in the red and Monday’s opening bell made it dip further. Foreign and institutional investors are exiting their positions which led to the rupee decline this month. The latest data shows that foreign and institutional investors have sold $2.6 billion worth of equities in the Indian market.
Simultaneously, the US dollar inflow into the debt market touched $7.5 billion during the same period. These developments contributed majorly to the decline of the Indian rupee while the US dollar grew stronger globally.
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Sajal Gupta, Head of Forex at Nuvama Institutional said that the situation will be concerning if the the rupee depreciates to 83.80. It will “be a matter of concern till it is holding above 83.80,” and said that further depreciation will be “quite gradual”.
The US dollar is the most dominant currency in the forex market currently. It has outperformed 22 out of 23 local currencies in Asia, including the Indian rupee. Only the Hong Kong dollar has faced resistance against the onslaught of the US dollar.