Dec 2014: 4 reasons why Dollar is getting expensive

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In a matter of few days the rupee has breached the 63 levels mark, after being very steady at around the 61 levels for several months. It hit a low of 63.71 levels and now threatens to surge past the 64 levels mark. Here are a 4 reasons why the currency has hit a 13-month low.

A Rout in the Russian Rouble

Ever since certain sanctions were imposed on Russia, the Russian Rouble has been collapsing. India may not have to do much with that, but when any emerging market currency falls against the US dollar, other emerging market currencies move in tandem. More of a sentimental rub-off.

Dec 2014: 4 reasons why Dollar is getting expensive
The Russian authorities raised interest rates in Russia sharply to prevent a fall in the Rouble and it worked as a temporary measure. We have to see if the Rouble now settles down and calms nerves around the globe.

Poor Trade Data in India

India's trade deficit widened to an 18-month high in November as demand for machinery and transport equipment soared. Gold imports also was high jumping as much as 34 per cent. This was certainly not good news for the currency markets, though many analysts feel that this could have been a temporary aberration.

Dollar Demand From FIIs

There has been good dollar demand from foreign institutional investors as they continue to sell in the Indian debt and equity markets. In the cash markets itself FIIs have sold in excess of Rs 4000 crores in the last few weeks. This has led to dollar demand some pressure for the rupee. If FIIs continue to press sale in the Indian markets, there could be some more pressure on the rupee.

No intervention from the Reserve Bank of India

Normally when there is a sharp fall in the rupee against the dollar, there is some intervention from the RBI which tends to sell dollars. However, dealers say there has been no large scale intervention as such. The RBI has now bolstered its dollar reserves and can sell dollars as India's forex reserves are far better than they were a few years back.

Conclusion

How far the rupee will fall against the dollar is difficult to say. The currency might dip below the 64 levels in the near term and much would depend on global factors.

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