Newsmaker. Strong dollar exerts pressure on rupee

Gurumurthy K Updated - March 10, 2015 at 04:40 PM.

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The Indian rupee hit a fresh two-month low of 62.81 today in the early trade. It is currently under pressure as expectations of an early rate hike from the US is pushing the dollar higher, affecting other currencies. 

The action of Foreign Portfolio Investors (FPIs) will have to be closely watched now. Any sign of them pulling out money from the Indian market could add to the pressure on the currency. The FPIs have pumped in $6.08 billion into Indian debt and $5.20 billion in the equity segment so far this year.

India better placed

The bloodbath in the Indian financial market when the US Federal Reserve announced its plan to taper quantitative easing in May 2013 is well known. Though some fear a similar rout, once the US announces its rate hike plan, the damage might not be as severe as India is better placed on various fundamental factors now.  

The Reserve Bank of India has accumulated huge forex reserves. From $277 billion in September 2013, India’s forex reserves now stands at an all-time high of $338 billion as of February this year.

Although the current account deficit has almost doubled from $5.17 billion in September 2013 to $10.08 billion in September 2014, easing import bills could help in limiting the deficit from widening at a faster pace. The sharp fall in crude oil prices is a boon to the Indian economy. It has pushed india’s import bills lower by 25 per cent from about $43 billion in September 2014 to $32.2 billion in January this year.  But falling exports is a worry. 

Strong dollar

The US dollar index (98.2) is trading at its highest level seen since October 2003. Technically on the charts the dollar index looks very strong and the next important resistance is visible only at $101.5. A rise to test this resistance looks likely in the coming weeks.  Having said that, the overall strength in the dollar would continue to keep the rupee under pressure while better fundamentals could help limit the pace of the fall in the currency. The rupee has immediate support at 62.85 and 63. A strong break below 63 will drag the currency lower to 63.6 in the coming days.

Published on March 10, 2015 09:51