Rupee hits historic low of ₹71 per USD

USD INR breaches life time low of  ₹71

The Indian rupee touched a historic low of ₹71 against the US dollar on Fri Aug 31, 2018, falling 26 paise today, 1.55% during the week and more than 11% year-to-date. It was trading at around ₹64 to the dollar on same day last year. 

The causes of supporting USD and INR weakening are:

• Consistent demand for the USD from oil importers.
• Fall in EM currencies.
• Rising crude oil prices.
• Inflationary pressures.
• Lingering Sino-US trade tensions.
• Looming US sanctions against Iran's oil exports.
• Shutdowns in Libya, debt crisis in Venezuela have led to crude oil supply constraints. 
• India's widening current account deficit.
• INR is under performing its emerging market (EM) counterparts.
• US economy reported best performance in last nearly 4 years, showing 4.2% growth. 
• As the US economy is growing and US Federal Reserve raising interest rates, the demand for dollar has also been increasing.

Rupee is still overvalued and healthy forex reserves may limit the downside of the rupee. RBI may crush speculative longs but it can do little to prevent INR opening weaker on gaps. RBI is unlikely to intervene as the rupee is still overvalued and currencies of EMs are also depreciating. 

Since the present situation that is strengthening USD and weakening INR is likely to continue for some more time, USD-INR rate could touch ₹80 by end of the year. Despite good monsoon, depreciating rupee and its consequences on domestic price rises etc could spell doom for Modi since general elections are just 8 months away and there is very little he could do to contain damages.