Why rupee is falling: The Indian rupee slumped to a record low of 70.32 against the US dollar in opening deals on Thursday, plunging nearly 43 paise from its Tuesday’s close at 69.89 against the American currency. On Tuesday, the rupee had collapsed to an all-time low of 70.09 against the US dollar, falling 16 paise. According to currency analysts, sell-off in emerging currencies on the back of a free fall in Turkish Lira affected the rupee’s movement.
However, shrugging off the initial losses, the domestic currency recovered almost 15 paise from its record low level to trade at 70.23 against the greenback during mid-morning deals on Thursday, Bloomberg data showed. We take a look at 5 keys factors that led to the slump in Indian rupee during early trade on Thursday.
Why rupee is falling: 5 key factors that led to the slump in rupee
Free-fall in Turkish Lira: The Turkish currency on Friday had tumbled some 16% to a record low against the dollar against the dollar as US President Donald Trump said he had doubled steel and aluminium tariffs on Turkey. The fall in Lira affected most emerging market currencies including the Indian rupee. However, the Turkish lira eased to slightly below 6.0 against the dollar on Thursday after the US ruled out removing steel tariffs on Turkey, said a Reuters report. The lira, which has weakened 36% against the dollar this year, stood at 5.98 against the dollar at 0425 GMT as investors weighed up the latest comments from the White House.
US Dollar at 13-month high: The US dollar has risen nearly 8% over the last four months and hit a fresh 13-month high on Wednesday. According to a Reuters report, President Donald Trump’s recent trade policies, including the imposition of import tariffs on some Turkish goods, have had the opposite effect of strengthening the greenback.
Widened trade deficit: Official data released on Tuesday showed that merchandise trade deficit widened further in July to scale a 62-month high of $18 billion riding on the back of an elevated net oil import bill and an almost 41% jump in gold purchases from overseas after a contraction in the previous six months. In June, the trade deficit had hit $16.6 billion.
Fresh demand for dollar: “Indian Rupee fall is not on back of any fundamental but foreign investors are hedging Indian assets by purchasing dollar. Investors are buying safe haven currencies Dollar, Yen and Swiss franc and selling off emerging market currencies. We expect the weakness in Indian rupee to continue till 70.80 in future,” said Bhavik Patel, Senior Technical Analyst at Tradebulls Securities.
Capital outflow: Provisional data from the stock exchanges showed that foreign institutional investors off-loaded stocks worth Rs 1,100.20 crore from August 1-14. In contrast, domestic institutional investors invested in scrips worth Rs 93.64 crore.