Indian rupee declines past 80/USD for the first time ever
The Indian rupee has hit a record low against the US dollar. It fell past the 80-per-dollar mark for the first time ever on Tuesday, sending signals of deep concern. According to Bloomberg, the rupee hit an intra-day record low of 80.0175 in Tuesday's early trade. Market analysts believe the plunge could be even deeper after the currency broke the key psychological barrier.
Why does this story matter?
We've been talking about the rupee crossing the 80/dollar mark for a while. Now that it has happened, what is next for the Indian rupee? It is highly doubtful that anyone will be able to give you a concrete answer to this question. Further decline or an unexpected upturn in the future? Market dynamics say the former is likely, but let's wait and watch.
Rupee has fallen over 7% this year
The rupee briefly crossed the 80-mark but closed just below the key barrier on Monday, reported PTI. After opening at 79.9863 on Monday, it soon crossed the barrier. Since the beginning of 2022 the Indian rupee has plunged over 7%, and in the last eight years, it has fallen by over 25%. The RBI's rate hike hasn't been able to stop the free fall.
Exit of foreign funds have caught rupee in shambles
We know all of you are wondering what's causing this never-seen-before fall of the Indian rupee. One of the major forces behind this is the outflow of foreign capital from the country. The last 9-10 months have seen foreign investors pulling their funds back from India mainly due to the country's increasing current account deficit, rising yields in the US, and elevating commodity prices.
Russia-Ukraine situation has intensified rupee's fall
Other apparent culprits in the rupee fiasco are rising oil prices, the geopolitical turmoil caused by Russia's invasion of Ukraine, and inflation. The Russia-Ukraine war presented a rude awakening for economies waking up from the slumber caused by the pandemic. The war has played a massive role in rising oil prices. India's well-documented dependency on oil imports, in turn, has caused further rupee depreciation.
Dollar performs the best when the world is in turmoil
The US dollar, the world's strongest currency, thrives in turmoil. Increasing inflation has forced central banks around the world to raise interest rates. However, no one has been more aggressive than the US Federal Reserve when it comes to raising rates. Increased returns on dollars have pulled back investors back to the US. Increasing investment has further strengthened the US dollar.
Dollar index is set to be volatile this week
The US Dollar Index (DXY), which measures the currency's strength, has been riding high, touching 109.2 last week. However, the greenback reaching parity with the Euro has set up a volatile week for the former. With the European Central Bank set to raise interest rates, the dollar is expected to be volatile this week. The dollar index hit a week's low on Monday.
Rupee is expected to plunge further due to weak fundamentals
Meanwhile, the future looks bleak for the Indian currency. The immediate impact of a weak rupee is that importers will have to pay more. Even when the dollar index hit its week low on Monday, the rupee was unable to make any inroads as it was held back by an oil price increase. With weak fundamentals, the rupee's downward journey is likely to continue.