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The Sharp Fall in Indian Rupee: 6 Points to Know

Apr 14, 2020

As the Coronavirus pandemic continues to haunt the global financial markets, the rupee has been hit badly.

The domestic currency has been continuing its downtrend and hit its record low level against the dollar last week.

Here's a timeline showing how the Indian rupee has performed lately and the factors behind it...

  1. Rupee in 2018:

    The Indian rupee was the worst performer in Asia in 2018. As can be seen from the chart below, it fell by around 12% against the US dollar. This was seen due to a strong dollar and high oil prices in 2018. Similarly, the spill-over from the emerging-market turmoil in Argentina and Turkey weighed on the rupee in 2018.

    Indian Rupee: The Worst Performing Currency in Asia in 2018

  2. Rupee in 2019:

    The rupee traded on a volatile note last calendar year. However, for most of 2019, it traded on a negative note against the US dollar.

    While it started the year at 69.71 against the US dollar and also witnessed some uptrend from April 2019 to August 2019, it went on to depreciate during the end of the year. On December 2019, it ended at 71.31 against the US dollar.

    Rupee Trades was Volatile in 2019

  3. Rupee in 2020 So Far:

    On a year-to-date (YTD) basis, the rupee has depreciated sharply against the US dollar. While it started the calendar year 2020 at 71.28 against the US dollar, it is currently trading at 76.27 against the US dollar. This translates to a depreciation of around 7% for the domestic currency.

    YTD Performance of the USD/INR

  4. Downtrend in March 2020:

    The massive sell-off in equities and bonds led to a huge fall in rupee against the dollar in the month of March 2020. Most of the selling pressure was due to the slump in equities and currencies globally.

    Investors were concerned that support measures from governments and central banks may be insufficient to halt the economic damage caused by the coronavirus pandemic.

    Here's how the currency performed in the month of March:

    Huge Depreciation of the Rupee in March 2020

  5. Rupee Hits Record Low in April 2020:

    The rupee fell to a new record low of 76.55 against the US dollar on 9th April, 2020.

    This was seen as a rise in coronavirus cases fanned fears of the government extending the lockdown to contain the pandemic.

  6. Factors Behind the Rupee's Fall:

    Some major factors behind the recent fall in rupee are...

    • Weak sentiments in the currency markets due to global risk aversion
    • Sharp fall in the Indian stock markets
    • Sharp fall in global financial markets due to coronavirus fears
    • Strengthening dollar
    • Thin liquidity due to reduced participation

These are some top pointers on how the Indian rupee has been performing in recent years and amid the coronavirus led stock market crash.

I reached out to Vijay Bhambwani, editor of Weekly Cash Alerts, who is closely tracking the Indian rupee in the current scenario. Here's what he has to say...

    The onset of Corona virus has not been kind to the INR.

    The Rupee futures (USDINR ) opened in March at 72.36 and have closed at 76.61 on April 09 2020. That is a decline of 5.87% in 6 short weeks.

    The implications of the same will be widespread. India is a net importing Country. Everything that we import will now be more expensive. Approximately two thirds of all our imports are fossil fuels. Fuels are what we call multiplier effect commodities. If fuel prices rise at the petrol pumps, everything from fruits, vegetables, grains to dairy and poultry products get expensive.

    That impact will be felt at a later date. I expect the trickle down effect to start appearing in prices after the April-June quarter is over.

    I have already factored in this aspect in my statistical data model and plan to identify such events to generate profitable trading opportunities for my WCA plan subscribers.

Vijay has also talked about the Indian currency in a special edition podcast from Investor Hour. He shares what's around the corner for Indian rupee and how to should position oneself for potential gains.

You can listen the entire episode here...

Speaking of ongoing stock market crash, our special report, How to Trade the Coronavirus Crash, is the most comprehensive report on how to trade the coronavirus, both from a short-term and long-term perspective. You can claim your FREE copy here...

And rest assured, Equitymaster is with you all the way on this journey. To that end, we have decided to offer you two of our premium learning courses free!

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Happy Investing!

Monish Vora

Monish Vora is a keen student of the markets and shares his observations through his clear and concise commentary.

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