Media Release
New Delhi, Aug 18: After weeks of volatility, the Indian Rupee (INR) is continuing its shaky performance against the US Dollar (USD). On August 11, it reached 74.82, having ranged between 74.82 and 74.86 for the day. So far in 2020, the rupee has decreased in value by almost 5 percent (4.96) in comparison to USD.
The currency has recovered around 2.61 percent since a worrying low point back in April when it hit a record low of 76.91. On Tuesday April 21, the rupee closed at a value of 1 INR to 0.012992 USD, signalling its lowest exchange rate since October 2018. It soon recovered its losses and was trading at 1 INR = 0.013158 USD by April 23 two days later – but the overall trend this year has been downward, in keeping with financial downturns around the world.
Whether you are an experienced forex trader or someone who is on the hunt for a forex no deposit bonus to get your trading career off the ground, the Indian rupee’s current performance against the US dollar can be difficult to predict. However, as the dollar teeters on the brink of its longest weekly losing streak since 2010 a decade ago, we could expect to see the gap between INR and USD start to narrow in the coming months.
What has affected the value of the rupee?
Floating rate system
For any currency, one of the most important factors which affect its market fluctuations and the exchange rate is the demand and supply of foreign currencies. When determining exchange rates, the rupee follows a ‘floating rate system’ which means that its value is set in response to market events on the foreign exchange – in other words, it is determined by the performance of other currencies on the forex market.
This is in contrast to a fixed rate system (also known as a pegged rate system). Under this regime, a currency’s value is set by a monetary authority, such as a government or regulatory bank, against the value of one or more other currencies. It can also be fixed against the price of a commodity, for example, gold or another precious metal.
The majority of the currencies which use this system are African currencies. Most are pegged to the EUR, with the USD the second most popular choice. Nepal’s rupee is pegged to the INR.
Political and global factors
Current affairs strongly influence the value of the rupee. The mounting trade war between the United States and China has undoubtedly affected exchange rates all over the world, including in Asia, with forex analysts confirming that the market sentiment is being guided by the US-China tension. As a result, fewer people have been trading, which has had an effect on the US dollar index as well as on other currencies.
What’s next for the rupee?
Despite the global downturn, domestic financial policies for the Indian rupee seem positive. The Reserve Bank of India (RBI) is allegedly planning to start piloting offline digital payments in a bid to enable those in rural India to make virtual transactions without an internet connection.
India has consistently taken the lead in adopting digital payments. Reports suggest that by 2023, the country will be processing five times as many virtual transactions as it is today.