The Indian rupee has continued falling since the last consecutive month against the US dollar amidst the geopolitical tension between India and Pakistan. The risk sentiment sparked within the market. The rupee has already experienced a declining trend since the start of this year due to several macroeconomic factors, and this rising geopolitical tension between these two countries created worries among investors. Let’s explore the growing concern over why the Indian rupee is falling and what are the factors impacting rupee mostly.
Fall in Indian Rupee
There was already speculation going on since the beginning of the year that the US Fed would have a shallow rate cut, and it is expected to have a spike in US bond yield as a result. Not only that, the volatility in the oil market due to the global geopolitical crisis raised by the Russia-Ukraine war, the Red Sea shipping concern, and the Middle East crisis already were putting pressure on the rupee, and the recent geopolitical situation in India made this situation even worse.
Rupee: A Safe Haven
Despite the slide of the rupee against the US dollar, the rupee remained the safe haven for investors as the most stable currency. There is a strong resistance between the 85.80 and 86.20 levels, and the probability is that this resistance will be sustained. Breaching this level is most unlikely unless there is any major concern raised further globally.
Why Indian rupee is falling
The reason behind the continuous fall of rupees is not for only one reason. There are multiple factors that are playing a major role. The factors responsible for this decline are clear, but how they are impacting the currency is the major concern.
● Strong dollar
The strong dollar sentiment was raised because of waning expectations in the near-term rate cut by the Fed reserve that put pressure on the Indian currency. The strengthening of the dollar makes the investor attracted to US assets and further weakens the rupee.
● US bond yield
The expectation of rising interest rate over US treasury yields makes the dollar dominated assets more attractive to investors and further worsens the Rupee performance. This is one of the key reasons behind the concern over why the Indian rupee is falling.
● Crude oil price
Crude oil price is trading higher than expected price and further creating pressure on rupees. India imports a heavy amount of crude oil from various countries, and one of the major suppliers is Russia. The Russia and Ukraine war also plays a major factor behind turbulence. The higher crude oil price means more spending in dollars and hence weakening the rupee further.
● Geo political conflict
The geopolitical conflict between India and Pakistan created short-lived pressure on rupee. During any war-like scenarios, investors prefer to stay invested in some safe assets, and as a result, it hurt the rupee further.
The macroeconomic factors as well as the geopolitical situation affected the Indian rupee’s performance against the dollar, but the rupee is gaining its momentum against the dollar and gaining the sentiment of investors because it has a future projection of making itself an alternative manufacturing hub to China. It also made trade deals with the USA for the same. So, the Indian rupee remains an attractive investment still now for investors.