USD/INR forecasts change all the time, affected by news events and relative sentiment towards the US and Indian economies and this exchange rate is even more volatile than usual because of the uncertainties around the Coranavirus pandemic.
The Ukrainian crisis and its risks for energy supplies have pushed the dollar up against the rupee as India imports most of its oil requirements.
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In late January, the USD passed the 75₹ level, following comments from the Fed Chair which indicated that more aggressive rate hikes were in store. Meanwhile, the Indian rupee was weakened as the third wave of COVID continued its spread.
In 2021, a pipeline of IPOs attracted inflows of portfolio capital which helped buoy the Indian rupee relative to some of its other Asian peers. When most currencies in the region have weakened to some extent versus a stronger dollar.
However, the recent flop of the PayTM IPO and some others suggests that the rupee in 2022 won’t benefit so much from another inflow of funds.
Any gaining in favour for the rupee is attributed by bank commentators such as HSBC to the attraction of the carry trade — the ability to earn higher interest when holding INR versus other major currencies.
The Indian rupee has weakened (like most Asian currencies) against the US dollar on fears that surging energy prices could spur inflation and interest rate hikes.
India imports most of its oil requirements and higher crude prices tend to push up domestic inflation.
Unlike Latin American countries, which continue to benefit from a U.S. recovery, Asian countries are vulnerable to economic austerity in Saudi Arabia and elsewhere in the Middle East due to the drop in demand for Oil during the Covid pandemic. More than 60% of remittances to India, Bangladesh and Pakistan come from Gulf countries.
The foreign exchange market convention for USD/INR is to quote Indian Rupee as Rupee per US dollar. Thus a higher USD/INR rate actually means one rupee is worth less, that is you can buy more rupee for 1 USD.
The US Dollar has proven itself to be a safe haven amid the Ukraine-Russia conflict as investors seek refuge from the uncertainty.
A clear reflection of this is that the US Dollar index (measure of the USD strength against basket of currencies) is approaching 20 year highs.
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