Tuesday, November 22, 2016

USD vs INR

Rupee has slumped really fast and it is currently at 68.22 from 66.62 which was the rate on 8th of November when demonisation was announced, this signals a drop of 2.4% in 2 weeks (if annualized comes to a whopping 62%).  However Euro continues to be below 73 and it is currently at 72.56.

Reasons :

  • Demonetisation of Indian rupee has brought in huge liquid cash into system pushing interest rates down.  If interest rates go down rupee will not be a favourite currency for investors pushing its value down (meaning alternate currency USD value is increasing).
  • Trump effect – his promises on infrastructure boost, tax cuts is expected to spur growth and inflation in US. Inflation means higher interest rates (Fed Governor Yellen has already indicated an increase in interest rates soon).  USD is expected to gain in the short term atleast
  • Euro is weak against USD hence Euro / INR rates did not go up as much as USD / INR


Outlook – USD will continue to be above 68 till December.   Purchases in USD will be expensive