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1 USD Equals Rs. 83: What's Behind the Exchange Rate



  Aug 18, 2023

Rs.83 for 1 USD:Why?


The recent decline in the Indian rupee's value against the US dollar, reaching a 10-month low at 82.95 per dollar, can be attributed to several key factors:
 
1. Strengthening Dollar Index: The dollar index, which measures the strength of the US dollar against major global currencies, rose to a month-high of 103. A stronger dollar typically leads to weaker currencies in other countries, including the Indian rupee.
 
2. Rising US Bond Yields: The yield on the 10-year US treasury bond increased to 4.18%, signaling higher returns on US government bonds. As bond yields rise, investors find US assets more attractive, causing capital to flow into the US and potentially leading to the depreciation of other currencies like the Indian rupee.
 
3. Foreign Portfolio Investors (FPIs) and Oil Companies: Foreign portfolio investors and oil companies buying dollars had an impact on the rupee's value. These entities purchasing dollars led to an increased demand for the US currency and added pressure on the Indian rupee.
 
4. Asian Currency Weakness: The weakening of the Indian rupee was also influenced by the performance of other Asian currencies against the dollar. Peers such as the Chinese yuan, Japanese yen, Korean won, Malaysian ringgit, and Indonesian rupiah also experienced depreciation against the dollar.
 
5. Reserve Bank of India (RBI) Intervention: The Reserve Bank of India's intervention played a crucial role in mitigating the rupee's depreciation. It's speculated that the RBI may have sold a significant amount of dollars, estimated at $1.5 to $2 billion, through forward contracts and futures. This intervention helped prevent the rupee from further depreciation.
 
6. Market Uncertainty: The global financial market's uncertainty, including economic indicators and geopolitical events, can lead to currency fluctuations. In times of uncertainty, investors tend to seek safe-haven assets, often favoring the US dollar.
 
In conclusion, the recent depreciation of the Indian rupee against the US dollar can be attributed to a combination of factors, including the strengthening dollar index, rising US bond yields, increased demand for dollars by FPIs and oil companies, weakness in Asian currencies, and the impact of RBI's intervention. These factors collectively contributed to the rupee's decline in value.


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