- The rupee closely tracked movement in dollar index
- Dollar index measures the greenback's value against 6 major currencies
- The dollar has been on a weaker trend this year
Here Are 5 Things To Know About Rupee's Recent Volatility Against The US Dollar
1) The dollar index, which tracks the greenback against a basket of six major currencies like euro, pound and yen, fell to a low of 91.011 on Friday, its weakest since January 2015. The dollar index has been on sliding trend from the beginning of this year as political uncertainty in the US and expectations of dovish stance from Federal Reserve have hurt the greenback. A weak dollar has also contributed to the rise of dollar-denominated assets like gold to year highs. Madan Sabnavis, chief economist of CARE Ratings, said dollar index is one of the factors that affects the rupee. "When dollar weakens in global market, other currencies tend to gain, which is also happening here," he said.
2) Meanwhile, the euro has risen to multi-year highs against the dollar on expectations of strengthening economic recovery in the euro zone. ECB President Mario Draghi's suggestion that it may begin tapering its massive stimulus program later this year also added to the euro's strength against the US dollar.
3) Despite the recent volatility of the rupee, the Indian currency has surged over 6 per cent against the US dollar this year, boosted by strong inflows into debt and equity markets and a falling trend in inflation.
4) Buying of Indian debt and stocks by foreign institutional investors supported the local currency. In this year so far, foreign investors have pumped in nearly $27 billion in Indian capital markets.
5) A strong dollar in overseas markets weighed on the rupee sentiment, currency traders said. The dollar gained against global currencies amid the United Nations' move to impose fresh sanctions on North Korea. A strong performance in domestic equity markets capped the losses in the rupee. The Sensex ended nearly 200 points higher today.