US Dollar Falls To Lowest Since 2015: Who Wins, Who Loses In 10 Points
The dollar index, which tracks the greenback against a basket of six major currencies like euro, Japanese yen, and British pound, fell to 91.082 today, its lowest level since January 2015.
Domestic companies, which have to service dollar-denominated debt, stand to benefit.
- The dollar index also impacts the rupee's value. Strong capital inflows as well as broad weakness in dollar has taken the rupee's year-to-date gain against the greenback to 6.50 per cent since the start of this year. 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.
- Typically, there is an inverse correlation between the value of the US dollar and the prices of dollar-denominated commodities like gold and crude. When the value of the dollar falls, it takes less of other currencies to purchase the same commodities, thus increasing the demand for assets like commodities.
- Apart from the Korea tensions, analysts have attributed the recent rise in gold prices to a weaker dollar. Global gold prices have risen to year-high level of over $1,350 per ounce.
- A rising rupee results in lower crude oil prices back home, which helps keep inflation under check in the near term. Besides import duties, the dollar-rupee value also affects the domestic prices of gold and crude oil as India meets most of the requirement from imports.
- On the other hand, a strong rupee hurts India's export, denting the profit of exporters.
- India's export growth slowed to an eight-month low of 3.94 per cent in July, while the trade deficit widened to $11.44 billion on account of high gold imports. "Issue on exports is debatable. But yes, theoretically strong rupee militates against exports at the margin. But I believe global growth is the main driving factor," said Mr Sabnavis.
- The external value of the Indian rupee currently supersedes its internal strength and the resulting mismatch is hurting exporters, whose competitive edge gets hit with the declining value of the dollar vis-a-vis the rupee, industry lobby Assocham said in a report last month.
- Indian companies in the IT, pharma auto ancillary and textiles segments which draw a significant portion of their revenues in dollars could be hurt.
- Airlines companies, for whom oil prices account for a bulk of their operating expenses, benefit from a strong rupee. Domestic companies which have to service dollar-denominated debt stand to benefit from lower interest outgo as the rupee strengthens.
- CARE Ratings expects the rupee to move to 65-65.5 against dollar by March. But a lot will depend on how the dollar fares vis-a-vis the euro as well as capital inflows into India, he said. (With Agency Inputs)