Rupee Hits Fresh 2-Year High Against Dollar: 10 Things To Know

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August 3, 2017

Indian rupee hit a two-year high of 63.58 against the US dollar today, extending its recent gains. This is the highest level of the rupee against the dollar since July 2015.

August 3, 2017

Indian rupee hit a two-year high of 63.58 against the US dollar today, extending its recent gains. This is the highest level of the rupee against the dollar since July 2015.

The rupee had closed at 63.70 per dollar on Wednesday. The rupee had on Wednesday surged 37 paise in its best single-day show this year to breach the psychological 64-level, ending at a fresh two-year high of 63.70. The rupee has been one of the best performing currencies in the world, surging over 6 per cent year-to-date against the US dollar. Traders attributed the gains to heavy selling of dollars by foreign banks, with the Reserve Bank of India's decision to cut interest rates on Wednesday having only a limited impact.

Here are 10 things to know about the rupee's surge:

  1. The momentum in the rupee remains strong, say experts. "Within the emerging market space, currencies with strong fundamentals could continue to gain despite stretched valuations – INR (rupee) falls in this category," said Tushar Arora, senior economist at HDFC Bank.
  2. India is set to reclaim its position as the fastest growing major economy, with GDP expected to grow an annual 7.3 per cent in the current fiscal year, according to a Reuters survey, benefiting from a new goods and services tax policy.
  3. The upmove in the rupee was magnified on Wednesday as the RBI refrained from intervening to cap broader gains in the domestic currency, traders said.
  4. The rupee's rise comes in the backdrop of a surge in overseas inflows into the domestic stock and bond markets. Indian capital markets have attracted inflows of around $30 billion so far this year.
  5. Boosted by the inflows, the domestic stock markets have hit multiple highs this year. The Nifty is also one of the best performing markets in Asia rising over 20 per cent so far this year.
  6. Experts say that from hereon, the inflows and the broader dollar trend would determine the level of rupee this year.
  7. Lower inflation, falling current account deficit and prospects of higher economic growth have also boosted the rupee. The International Monetary Fund (IMF) has said in its latest update that India's economic growth is likely to rebound to 7.2 per cent this year and 7.7 per cent next year, aided by several reform measures announced by the government. The current account deficit has narrowed to just 0.6 per cent of GDP from a record 4.8 per cent in 2013, while foreign exchange reserves hit a record high of $389 billion as of July 14.
  8. The rupee's gains also come in the backdrop of a weakening dollar which had briefly touched a 15-month low against a basket of major currencies on Tuesday before recovering modestly since then.
  9. Globally, the dollar has shown a weakening trend. Recently, it hit a 15-month low against a basket of six major currencies. US political woes and lukewarm economic data pushed the dollar to multi-year lows and dampened expectations of another Federal Reserve rate hike this year. Though recent data on Friday showed growth in the world's largest economy picked up in the second quarter, but labour costs rose less than expected, stoking concerns that inflation will remain low. Hopes that the Trump administration will be able to push through tax reforms and economic stimulus in the near future, which are seen as dollar-positive factors, have also faded amid the political turmoil in the US.
  10. Experts say the dollar gain reverse some losses when the Fed starts shrinking its balance sheet, which it has said it expected to do "relatively soon", it could falter again if the US central bank fails to follow through with a rate hike later this year.

Courtesy/Source: NDTV