Is Rupee rally only due India’s strong economy, or does Donald Trump has something to say too?

By: | Updated: August 4, 2017 7:12 PM

Is there something more to the strengthening Indian currency, other than the fundamentally strong economic factors?

Cochin Shipyard,  IPO, Qualified Institutional Buyers, public sector shipyard , largest public sector shipyard in India The Indian Rupee made news by hitting a fresh two year high of Rs 63.6 Yesterday. (Image: Reuters)

The Indian Rupee made news by hitting a fresh two year high of Rs 63.6 Yesterday. This development comes in the backdrop of low inflation, improving domestic economy, higher real rates and record foreign-exchange reserves. The Indian bourses have attracted inflows worth around $30 billion year to date. Buoyed by the inflows, the domestic stock markets have scaled many new heights this year. The Nifty is also one of the best performing markets in Asia rising over 20 per cent so far this year. However, is there something more to the strengthening Indian currency, other than the fundamentally strong economic factors?

On the other side of the globe, the Dow Jones Industrial Average Index, the equity market benchmark index for the United States of America achieved the 22,000 mark for the first time ever on Wednesday. However, the dollar unlike the rupee is trading at a 15 month low, when compared to rival currencies.

In fact, CNN Money reported the analysts attribute much of the gains made by the Dow Jones to better earnings reported by American Companies, helped by a rise in overseas revenue due to the weak dollar. Most of the stocks in the 30-ticker index have export driven revenues. The best performing stocks of the Dow were Boeing, Apple and Visa. Less than 55% of their revenues come from the United States. In fact no one knows this relationship better than President Donald Trump. “I like a dollar that’s not too strong,” Donald Trump had reportedly told the Wall Street Journal.

CNN Money reported that he President Trump’s legislative failures, coupled with buoyant economic growth in Europe, have led the dollar to lose value. It is to be noted that, the dollar index is heavily weighted toward the euro, which has been rallying. This disproportionate weight has exacerbated the loss in value of dollar.

While in India, the benchmark indices as well as the Rupee are going strong, in the United States, benchmark indices have peaked, while to dollar has plunged. The U.S. dollar index, which measures the American currency against its rivals, has plunged 10% since peaking Jan. 3. Thus, while there are domestic factors which led to a rally in rupee, the weaker dollar too seems to have played a significant role.

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