Don’t be surprised to see the Indian rupee hitting fresh all-time
lows in days to come after the dollar index touched 3-year high on Friday. The latest
US non-farm payroll data has exceeded beyond analyst’ expectations signifying
that the job creation is happening and the US economy is coming back on growth
trajectory. This has further fuelled the speculations of US Fed tapering off
the quantitative easing program later this year.
As seen from the chart, crude and dollar index have moved in
the opposite directions. However, with impressive job data, crude has also
rallied along with dollar index on expectations of demand for oil picking up in
US. Back home, analysts have already predicted the rupee to touch 62-65 levels
in this calendar year. India being net
importer of crude will be severely impacted from the current rally in crude and
dollar. This will further deteriorate the current account deficit. Also, strength
in US dollar will further support the US treasuries leading to more unwinding of
positions by the FIIs from the bond market.
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