ADVERTISEMENT

Rupee's Appreciation Has Been Softer Against Dollar's Depreciation

Rupee's Appreciation Has Been Softer Against Dollar's Depreciation

In the last one month, US dollar index has witnessed a slump of over 4 per cent because of the growing number of coronavirus cases thus making it difficult for the US economy to outperform its peers.

But despite that the Indian rupee has seen a relative softness. According to the Bloomberg data, in the month of July, US dollar index dropped 4.33 per cent. In this period, the Indian rupee appreciated against the greenback by a mere 1 per cent.

If compared to other emerging currencies, Brazilian Real and Mexican Peso rose 2.5 per cent, Malaysian Ringgit appreciated by 1.11 per cent. As per the Bloomberg data, July was the weakest month for dollar in over a decade.

One reason for rupee not appreciating much is because of the Reserve Bank of India's intervention. RBI has bought around $32-35 billion since March-end to boost reserves. The latest RBI data suggests that the forex reserves are at record high levels of $522.63 billion

Gaurang Somaiya, FX Analyst, Motilal Oswal says, "One of the major reasons for the rupee appreciation has been the rush of flows into Indian equities. Fund inflow in the equity segment has been to the tune of $4.9 billion in the last three months and a few big corporates have raised dollars via stake sale."

"As far as rupee (Spot) is concerned we expect it to trade higher in the near term following broad weakness in the dollar and could test levels of 74-73.50 but our overall view remains negative for the rupee in the coming quarter. On the lower side for the rupee we expect 76-76.50 to be an important support," he added.

Experts believe rupee to remain range bound in coming days whereas RBI intervention is aimed at supporting the exporters so too much of appreciation in the rupee will hurt Indian exports thus in turn damaging the current account deficit.