Rupee sinks to a month’s low against the dollar in the opening trade in 2023
As of August 2, the Indian rupee faced a drop, reaching a one-month low of 82.40 against the US dollar in the opening trade. This decline was influenced by factors such as rising crude oil prices and weaker Asian currencies. Additionally, there was an increasing demand for the US dollar and concerns over foreign outflows, which further contributed to the rupee’s weakness.
However, by 9.25 am, the rupee had slightly recovered and was trading at 82.39 to a dollar, experiencing a decrease of 0.16 percent from its previous close. The currency had reached its lowest point since July 10 when it hit 82.40 against the dollar. The situation was being closely monitored due to the impact of volatile local equities and global economic factors on the Indian rupee’s exchange rate.
On August 2, oil prices increased by more than 1 percent, trading close to their highest level since April. The surge was driven by industry data indicating a larger-than-expected decrease in oil inventories in the US, which is the world’s largest consumer of fuel, as reported by the news agency Reuters.
Additionally, during the past four trading sessions, foreign investors sold shares worth Rs 5,700 crore in the Indian market. This could have contributed to the depreciation of the Indian rupee against the US dollar.
Furthermore, a possible reason for the weakening of the rupee was the rising demand for the US dollar, fueled by concerns about potential outflows of Russian funds held in rupees with local banks. These concerns might have triggered a shift towards the US dollar as investors sought a more stable currency amid uncertain market conditions.
Yes, you are correct. The currency market is influenced by a combination of factors, and the value of the Indian rupee against the US dollar is subject to fluctuations based on various global economic conditions, geopolitical events, oil prices, and foreign investment flows.
Regarding the impact of Western sanctions on Russia’s use of the US dollar for trade, India has chosen to use alternative currencies such as the dirham, yuan, and rupee for its transactions with Russia. By conducting trade in these currencies, India is helping to facilitate trade between the two countries despite the restrictions on using the US dollar.
To facilitate these transactions, local banks in India hold these currencies in special accounts, ensuring smooth and efficient trade deals between India and Russia. This approach enables both countries to continue conducting business despite the limitations posed by the sanctions.
Overall, the currency market is influenced by a complex interplay of various economic and geopolitical factors, and the decisions made by countries like India to use alternative currencies for trade can have significant implications on the value and stability of their own domestic currencies.
However, due to the trade dynamics between India and Russia, where India’s imports from Russia surpass its exports to Russia, Russian companies have amassed significant amounts of Indian rupees. To address this situation, the Reserve Bank of India (RBI) has permitted these accumulated rupees to be invested in local government bonds.
While this move helps utilize the excess rupees in the Indian financial system, there are concerns among the markets about the potential outflows of these funds in the future. The worry stems from the possibility that Russian companies may decide to repatriate these funds or convert them into other currencies, which could lead to increased foreign exchange (FX) volatility in the Indian currency market.
As a result, market participants and the RBI will be closely monitoring the situation to manage any potential risks to the stability of the Indian currency and financial system. The anticipation of large-scale conversions or repatriation of these funds creates uncertainty in the FX market and could impact the value of the Indian rupee.
As of the mentioned date, several Asian currencies were trading weaker against the US dollar. Here are the percentage changes in the value of some Asian currencies compared to the dollar:
– South Korean won: -0.84%
– Malaysian ringgit: -0.46%
– Indonesian rupiah: -0.34%
– Philippines peso: -0.31%
– Taiwan dollar: -0.22%
– Thai Baht: -0.22%
– China Offshore: -0.08%
These declines in the value of Asian currencies against the dollar suggest a strengthening of the US dollar in comparison to these currencies during that particular trading session.
Meanwhile, the dollar index, which measures the US dollar’s strength against a basket of major currencies, was trading at 102.21, showing a slight decrease of 0.09 percent from its previous close of 102.30. This index provides an overall indication of the US dollar’s performance in the foreign exchange market against major global currencies. A lower value in the dollar index suggests a relative weakening of the US dollar against the basket of major currencies it is compared to.
The weakening trend of Asian currencies against the US dollar and the slight decline in the dollar index may have been influenced by various global economic factors and market sentiment during that trading session. Currency markets can be sensitive to geopolitical events, economic data releases, and shifts in investor sentiment, which can impact currency valuations on a daily basis.
