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Dollar Index Strengthens, Pushes Rupee towards Possible Devaluation to 83 per Dollar

Otis De Marie • July 18, 2023

As the currency bazaar observes, a looming depreciation of the Indian rupee is on the horizon, largely due to the dollar index’s resurgence and a global uptick in oil prices. Market insiders maintain a collective breath-holding as they await the forthcoming US inflation figures, which could set the rupee teetering further.

Non-resident Indians (NRIs), particularly those residing in the Gulf region, stand to reap a windfall from the rupee’s devaluation, with each dollar remitted to India commanding a heftier amount in the local currency.

Tuesday’s trade witnessed the rupee skimming an all-time nadir against the dollar at 82.15 before closing a smidge higher at 82.05 – a 27 paise drop from Monday’s rate. Wednesday’s trading kicked off with the rupee’s value hovering near the previous day’s level.

The dollar index, a barometer of the US currency against a basket of six other currencies, has been flexing its muscles in recent sessions, clocking a robust 101.64 on Tuesday.

The greenback maintained its bullish momentum as Asian markets sprung to life on Wednesday. “The dollar index is projected to edge past the 102 mark, pushing the rupee to slump further to 83 per dollar in the near term,” predicts Ajay Kedia, managing director of Kedia Commtrade and Research, in an interview with Arabian Business.

However, Kedia’s prediction states that the forthcoming US inflation figures, due to be unveiled Wednesday evening, will hold sway over the immediate trajectory of both the dollar index and the rupee.

In the past few weeks, the rupee’s value has oscillated within a tight band against the dollar, ranging from 81.55 to 82.45. Manoj Jain, a foreign exchange expert and director of Prithvi Finmart, attributes Tuesday’s rupee frailty to the dollar’s rally and global oil prices’ ascent. In conversation with Arabian Business, he adds, “However, the US banking crisis, impending debt default, and the US economy’s anemic growth could hamstring the dollar’s gains, thereby stymieing the rupee’s further descent.”

Moreover, Jain posits a potential resurgence of the rupee in the coming years, a prediction underpinned by a robust increase in India’s foreign exchange reserves, record GST receipts, and encouraging manufacturing and services PMI data.

Global crude prices have been on an ascending trajectory over the past few trading sessions, reflecting diminished concerns of a US recession and the country’s sturdy job data for April.

In response to the rupee’s anticipated trajectory, banking circles are bracing for a surge in non-resident Indian (NRI) remittances, especially from the Gulf region. Given the UAE dirham’s peg to the dollar, the rupee’s movement against both currencies tends to be synchronized.

“We see an increased likelihood of a surge in inward remittances, particularly from the Middle East, if the rupee depreciates further in the coming days,” says a high-ranking official from a private bank in Kerala, who prefers anonymity.

During fiscal year 22 (FY22), India welcomed a record $89.12 billion in remittances, with the UAE providing the second-largest tranche. Kerala-based banks, catering to the state’s considerable expatriate population in the Middle East, claim a disproportionate share of these remittances.

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