Why is Indian Rupee falling against Dollar? – Explained

The Indian rupee is on a free fall against the dollar since last few weeks. Today (10 Sept. 2018) it crossed 72.50 rupees per dollar for the first time. So what’s the reason for this fall? Why is it falling every other day?

Well, there are several external factors responsible for it. Some of them are listed below…

Demand & Price:

Demand & Price

As we all know, demand and price are inversely related to each other. The Higher the demand for a product, higher the price for the product. To rephrase the sentence, the higher the demand for Dollar results in higher the price of Dollar. The currency value of a nation majorly depends upon the demand and supply of the currency.

US Dollar flying high:

US Dollar has appreciated against every major currency in the world during the last 5 years. The major reason for US Dollar appreciation is President Trump’s administration’s current trade policies. Further to the rising prices, people are now investing more in US Dollars in a hope that it will go higher in the future, which in the result is increasing the demand for US Dollars.

US Dollar against world currencies

Turkish Lira affected Indian Rupee:

Turkish Lira (TRY) the currency of Turkey has fallen greatly against US Dollar in recent times due to trade barriers imposed by the US on turkey. As Indian currency and Turkish Lira both are exotic currency (not traded in high volume) thus, the traders have to first exchange the currency with US Dollar and then trade the product. Because TRY had fallen greatly against USD, India had to pay more dollars to turkey for importing. 

For Example: Suppose India wants to buy steel from Turkey. So, India will first exchange INR with USD and then buy steel in USD from Turkey. The same goes for Turkey, if they want to buy something from India they will first exchange their currency (TRY) with USD and then buy from India in USD.

Currency Domino
Image Source: Google

Also, Turkey and India both are considered as emerging markets among the world investors. So, the fall in the value of Turkish Lira resulted in the fall of Indian Rupee. It’s almost like if the value of one product falls other similar products also falls in value.

Crude Oil Prices Skyrocketing:

Skyrocket
Image Source: Google

Oil prices have now reached to about $75 a barrel from $62 a barrel in March 2018. There are several factors affecting global crude oil prices. Several factors like sanctions imposed by Trump’s government on Iran’s oil. The US is building pressure on its allies like China, India, etc. to stop buying oil from Iran, which is eventually increasing the prices of crude oil.

China-US Trade War:

us china trade war
Image Source: Google

The trade war between China and the United States has impacted a fall in the Chinese currency Yuan/Renminbi. As the dollar started rising the investors speculated dollar rise and started buying more dollar to hedge, which created a demand for the dollar and its prices started rising.

About the author

Vedant Solanki

Vedant Solanki is a Graduate and has been a former Technical Support Engineer! His passion for helping people in all aspects, inspires him to write blogs.

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