Reason for Rupee Depreciation against dollar

By | May 29, 2013

As discussed in Morning post Rupee is trading near 8.5 month low,it has plunged almost 3% for the week. FII have been pumping money in India from the start of 2013 and for May alone we have seen flows of  $3 Billion mainly in Equities and Debt market. Also with $5.9 Billion Dollar Open offer by Hindustan Unilever in line, With such huge FII money flow Rupee is still trading at 56.25 which is kind of riddle for many people. Let me elaborate why Rupee is still trading at 8.5 month low.

Dollar trading at 3 year High

As discussed US Dollar at 3-Year High   USD has touched its 3 year High at 84.3, US stock market are at life highs,Strength in USD indicated recovery in US economy, We have seen a slew of data indicating the same. Housing Market is recovering, Job situation is improving which make market participants believe the US Fed will be tapering of QE Infinity. Gold which was safe heaven for investor has been quiet volatile off late, So investor looking for stable and non volatile instruments has again turned their attention to USD. So strength in Dollar Index is one of the reason Rupee is depreciating at rapid pace.

 

No Green Shoots in Indian Economy

Indian Economy is still not out of woods, Consumer and Food Inflation is still at Highs, Fiscal Deficit is large, IIP is almost flat and Growth concerns still lingers. Rating agencies has told still their is 1/3 changes of reducing rating of India from Current of BBB- with a negative outlook to JUNK status if fiscal and current deficit are not brought under control.

India is net Importer of OIL and GOLD, with fall in GOLD prices Indian consumers are buying more gold which is increasing the gap between Import and Export  and thus we are having a huge current account deficit and it putting more pressure on Rupee.

 

Euro Zone Recession

Eurozone is still battling with recession, Imports are coming under pressure as due to almost nil growth in Eurozone , Euro is trading well below its psychological level of 1.30. ECB has also committed to flood market with Euros if economic data does not imporove hence putting further pressure on EURO and lead to Buying in USD which will further put pressure on Rupee.

 

Technical of USD INR

As discussed in  USD INR Weekly Trading Forecast, USD has broken out of symmetrical triangle on Weekly chart which has target of Rs 60 in medium term.

 

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