The Indian rupee started flat in the forex trade and edged higher by 2 paise to slip further to its historic low of 84.58 against the US dollar in early Monday, December 2, 2024. This movement was attributed to the disappointing macroeconomic data, and a negative trend in the domestic equity market.
Key Points:
Forex Traders’ Observations: Many emerging market currencies including CNH or KRW, and IDR fell after Donald Trump, President of the United States of America elect, spoke ill of BRICs currency.
Trump’s Tariff Threat: Pursuant to Trump’s tweet of November 30, 2024, Trump vows to slap 100% tariff on the BRIC ports which he warns might act in a detrimental manner towards the U.S. dollar.
Rupee’s Performance: The rupee had started the day at 84.59,’ commented most range-bound of the rupee, going as high as 84.58 against the greenback to end 2 paise higher than its previous close. It also returned to its historic low of 84.60 against the U.S dollar in the same period.
Dollar Index: The dollar index, which measures the greenback against a basket of six foreign currencies retreated to 106.28 or 0.52 percent higher.
Brent Crude: For the benchmark of global oil, it was up 0.57% at $72.25 per barrel in the futures market.
RBI’s Role: Markets are looking for at which level the Reserve Bank of India (RBI) wants to continue to support this currency.
Historical Perspective on Currency Exchange:
Exchange rates therefore has always been an essential component of international business and commerce. Perhaps before, the value of the currency was based on the physical standard such as gold or even silver. For instance, the Gold Standard was system by which the value of any countries currency was directly related to a certain amount of gold. This system was dumped during the 20th century, and what is in operation today is fiat money where the value of a currency is founded on the proclamation of the government.
Currency Valuation and Devaluation:
Valuation: When a currency apprecates or rises higher than the U.S. dollar it indicate a stronger economic zone, high investors’ confidence and sometimes higher interst rates.
Devaluation: On the other hand, when a currency weakens or falls in value against the dollar this may mean economic problems, reducing investor sentiment and inflation.
Current Scenario:
India’s forex reserves declined by $1.31 billion to $656.582 billion in the week up to November 22, 2024. The reserves had fallen a record $17.761 billion to $657.892 billion in the previous reporting week to November 15.
On the domestic macroeconomic front, latest Govt data out on November 29, 2015, revealed that India’s economic growth eased to near two year low 5.4 % in the July-September quarter of this fiscal due to weak showing by manufacturing and mining sectors and weak demand.
A poor start to the day on domestic stock exchanges also put pressure on the domestic currency. The 30-share BSE benchmark index Sensex was trading 343.00 points, or 0.43 per cent down at 79,459.79 points. The Nifty which opened at 24964 eased 106.65 points or 0.44% to close today at 24,024.45.
At the same time, the central government’s fiscal deficit for the first seven months of the current FY reached 46.5% of the full-year projections. The deficit was for 45 per cent of the budget estimates in the corresponding period of 2023 – 24.
Analysts added that sustained selling by foreign funds put more pressure on the currency as revealed by traders. Bloomberg data showed that on November 29, 2024, FIIs were net sellers in capital markets for ₹4,383.55 crore.
