This is another post from the Suggest a Topic page, and today we are going to look at why the Indian Rupee has fallen in recent times in terms of the US Dollar.
The Rupee has depreciated or fallen by about 10% in the last three months, and while it may seem like a lot – you’ll be surprised to know that it has actually done quite well when compared with currencies of other emerging countries.
The currency that’s done the worst in the last three months is the Brazilian Real which has fallen about 21% against the USD.
Here is a chart that shows the currencies of some of the main emerging economies and a few developed ones and how they moved in the last quarter.
The INR is the Indian Rupee, MXN is Mexican Peso, RUB is Russian Rouble, BRL is Brazilian Real, ZAR is South African Rand, JPY is the Japanese Yen, and EUR is the Euro.
As you can see – except for the Japanese Yen, the US Dollar has risen up against every other currency in this chart, and that too by some significant percentages.
Even the Canadian Dollar has had quite a fall in the last quarter dropping by as much as 9%.
This is what happened during the 2008 crisis as well, but the fall that time was a lot more ferocious than it has been until now, and in general that has been true for the stock market as well.
Here is how these currencies fared against the US Dollar during the 2008 crash.
The above chart is for four months so it’s not strictly comparable, but it does illustrate how badly currencies fall against the USD in times of crisis.
So, what’s going on in here? What can you make out of it, and what’s the reason for the fall of the Rupee?
As you can see from the two charts above – it’s not so much that the Rupee has fallen as it is that the US Dollar has appreciated.
Dollar is a safe haven asset and global investors with billions in assets move their money in the USD in the form of US Treasuries and bonds when times become rough, and the return of capital becomes more important than return on capital.
The US may have its problems but there is no one quite like the US to park your funds with. In the last recession – the Swiss Franc and Japanese Yen did quite well as investors moved their money to those assets but Japan has been intervening in the forex markets quite regularly, and when recently the Swiss Central Bank capped the Swiss Franc to Euro rate – the market got quite a shock and a lot of traders must have lost quite a bit of money then.
In conclusion – in times of crisis the USD tends to rise against all other currencies, especially emerging market currencies, and this is not so much the Indian Rupee falling but the USD rising against most currencies it trades against.