Rupee Strengthens Against US Dollar: Key Factors Behind Rise

Rupee Strengthens Against US Dollar: Indian rupee appreciated 16 paise to 85.41 against the US dollar on May 19 in early trading. The rupee appreciation was helped by a weakness in the dollar in foreign markets and strong foreign fund flows. Although rupee appreciation is good, dealers are guarded because of uncertainty in global economies and volatile crude prices.

Reasons Behind Rupee’s Appreciation

A few reasons led to the appreciation of the rupee versus the dollar:

1. Weakening US Dollar

The US dollar index declined following negative reactions from investors towards Moody’s lowering of the US investment-grade rating. A weakening dollar helps the emerging market currencies, including the Indian rupee, and therefore causes short-run appreciation.

2. Foreign Fund Flows

Strident foreign institutional investments in Indian equities supported a rise in the value of the rupee. Investors still find India a stable economy, and capital inflows supported the currency.

3. Oil Price Movements

Brent crude prices eased lower due to fears of oversupply and negotiations on the US-Iran nuclear deal. Being a net oil importer in India, declining crude prices lower import costs, easing pressure on the rupee.

4. Market Sentiment and Economic Indicators

They are closely monitoring China’s factory figures, which will be able to set world trade trends. Any indication of slowing in the Chinese economy will have an impact on commodity prices as well as on emerging market currencies like the rupee.

Future Outlook

In spite of the rupee’s appreciation, forex experts forecast a tight trading range because of uncertainty in the world. The currency will range from 85.00 to 85.80 depending on US economic policy direction, trends in oil prices, and foreign investment inflows.

Also Read: Indian Rupee Strengthens Against US Dollar Amid Easing Global Tensions

The rupee’s appreciation against the US currency is a sign of robust market sentiment and robust foreign investment. Foreign economic fundamentals such as international oil prices and US credit worthiness concerns will continue to bear on it, though. Investors and traders need to be wary since the currency has to contend with volatile international fundamentals.