The Indian Rupee touched an all time low of 58.03 per dollar amid increased worries about India’s rising current account deficit and enhanced sale of Indian debt by foreign investors.

Indian Rupee

Indian Rupee vs. US Dollar

The Indian rupee fell over 1.6 percent on Monday against the US dollar to mark its biggest drop since September 22, 2011.  The Indian rupee had last touched a low of 57.32 in June last year.

The Indian rupee displayed a highly volatile trend for the past few days as it faced enhanced downward pressure due to heavy demand for US dollars.

The Indian rupee depreciated by over 5.5 percent since May.

The recent fall in the rupee is accentuated with the dollar gaining after disappointing data from China and improved job data emanating from the U.S. The latest developments have also fueled expectations that the U.S. Federal Reserve might curb its asset purchases later this year.

The U.S. dollar’s strengthening has also triggered weakness in other emerging currencies such as the Japanese yen, amid concerns over a possible end to the U.S. quantitative easing program.

Interestingly the Indian rupee has come  full circle. It gained 51 levels post-September. However, it gradually lost ground against the U.S. dollar.

The Indian rupee’s fall is also accentuated by foreign institutional investors pulling out from the Indian market.

The U.S. dollar’s longer term bullish outlook is also expected to remain intact as the Federal Reserve is expected to start scaling down its stimulus program if U.S. jobs data show continued improvement.

According to Abhishek Goenka, founder and chief executive of India Forex Advisors, the Indian rupee is currently on a free fall, breaching the head and shoulder pattern at 55.20.

Indian government bond yields have also started falling recently. The yield on the 10-year benchmark government bond 7.16 percent 2023 ended at 7.24 percent on Friday compared with the previous close of 7.21 percent. The fall is further accentuated with the speculation that India’s central bank, Reserve Bank of India, might cut the interest rate in the near future.

On the other hand, the 10-year bond yield in the U.S. is gaining strength with the speculation that the U.S. Federal Reserve might taper the quantitative easing program, which would ultimately make the U.S. bond yield trading above 2 percent.

Thus with dwindling Indian government bond yields coupled with strengthening of U.S. bond yield, the arbitrage opportunity for foreign investors would be reduced, applying additional pressure on the Indian rupee.