Dollar vs Rupee / Dollar suffered a big defeat in July too, will the rupee be able to recover soon?

Dollar vs Rupee: The Indian rupee fell to its lowest level since mid-March at 86.9150 in early trade on Tuesday, although it later stabilized at 86.8725, down 0.2 per cent. Several reasons are responsible for this decline, including weakness in the euro, a rise in the dollar index, rising crude oil prices, and heavy withdrawals from the Indian stock market by foreign investors. Apart from this, increased demand for dollars from currency traders and government banks has also increased pressure on the rupee. Let us look at these reasons and the future of the rupee in detail.

Major reasons for the fall in rupee

Delay in US-India trade deal

There is no concrete progress in the talks on the trade agreement between India and the US. Despite the August 1 deadline approaching, the chances of an agreement look weak, which is continuously increasing pressure on the rupee.

Withdrawal of foreign investors

On Monday, foreign investors withdrew more than Rs 6,000 crore from the Indian stock market, which is a major reason for the weakness of the rupee. The stock market is witnessing a decline for the fourth consecutive day, with the Sensex falling nearly 2,100 points in the last four trading days.

Rising demand for dollar

There is a surge in demand for the dollar from currency traders and government banks. In addition, the maturity of the Reserve Bank of India's (RBI) advance dollar position and the expectation of cash dollar inflows related to IPOs have fueled the rise in dollar-rupee swap rates.

Rise in crude oil prices

Crude oil prices are witnessing a rise in global markets. The price of Brent crude oil has reached around $ 70 per barrel, which is a one-month high. This is putting additional pressure on the rupee for an oil importing country like India.

Rise in dollar index

The dollar index has been witnessing a steady rise in recent days. It is currently trading at 99 levels, registering a gain of 1.5% in the last five days and 2% in a month.

Euro falls

The euro fell more than 1% on Monday, and is finally trading at 1.1584. Negative sentiment over the trade deal between the European Union and the US has also impacted other Asian currencies including the rupee.

What do experts say?

Anil Kumar Bhasali, Treasury Head and Executive Director, Finrex Treasury Advisors LLP, said, "The rupee opened on a weak note and may touch a one-month low of 86.90 this week. The Reserve Bank of India seems to be protecting the rupee from time to time, but it has accepted a gradual and steady decline. The stock market has also not been supportive for the rupee."

Can there be relief?

According to a note by MUFG, with signs of excessive reduction in net short dollar positions, the US dollar may get some relief in the near future. The market will also keep an eye on the Federal Reserve's policy decision on Wednesday. If the Federal Reserve adopts a dovish stance, the dollar could weaken, which could provide some support to Asian currencies, especially the rupee.