Why US dollar has consistently risen against rupee for 15 years

The rupee is trading at 78.08 vs the dollar and is near all-time lows. If we draw our attention to the Monthly chart of USD/INR, the dollar has gained consistently since the lows of 40 witnessed in the fag end of 2007.

So, it becomes clear that the US dollar has been resilient against the rupee for almost 15 years running now.

There were multiple reasons in the past too like the India’s current account deficit, India’s dependency on crude oil. However, recently, this can be attributed to the multifold reasons:

1) FPI outflows since October 21 (Rs 3.25 trillion) with May seeing the worst sell-off in 2 years (Rs 44,000 crore).

2) Rising oil and commodity prices due to the Russia-Ukraine conflict and supply disruption due to resurgence of COVID-19 case in China.

3) Fed monetary policy tightening and dollar acting as a haven asset for investors.

4) Persistent Global Inflation

Above is a 3-month chart where we can see that RBI has done a fairly good job in arresting the currency depreciation vs dollar. The dark blue line is the rupee and as we can see only the Mexican Peso has done well if we look at the other emerging currencies like Yuan, Turkish Lira, and Pakistan Rupee. The only currency that has done well vs dollar was the Russian Ruble.

The RBI has been very vigilant in the past to lessen the damage of the Rupee and even right now, RBI remains a seller at higher levels but if the pair continues to trade above 77.80-77.90, a higher rate of depreciation in the rupee cannot be ruled out.

(The author is Technical and Derivatives Analyst, Ashika Group)