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Last Updated : Sep 01, 2019 08:01 AM IST | Source: Moneycontrol.com

Rupee dives to a new low in 2019, but may become stronger against dollar soon

Donald Trump has said that Chinese officials had made two "very good calls" and that "they want to make a deal"

Moneycontrol Contributor @moneycontrolcom

Gaurav Garg

The Indian Rupee touched the 72 mark against the US dollar for the first time in 2019 following a sell-off in domestic equities amid weakness in Chinese Yuan, which fell to a fresh 11-year low level.

The Budget proposal to hike surcharge on FPIs had spooked foreign investors, who withdrew more than $3.4 billion from domestic equities in July and August. The massive capital outflows also put pressure on the rupee, which slumped against the US dollar.

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The Withdrawal of this enhanced surcharge on FPIs is a big positive move for Indian markets as it could reverse the outflows seen post Budget. It will help the rupee to appreciate. Overall, a good sentiment booster for the Indian economy.

In line with the withdrawal of surcharge, Reserve Bank of India (RBI)'s rate cuts bring hopes to borrowers. While a reduction in lending rates in the economy will clearly benefit loan takers, it will also hit those living off income from fixed deposits when the rates on these go down.

RBI had cut the repo rate and reserve repo rate by 35 basis points respectively. This is fourth time in a row this calendar year that the Central Bank has cut the key rates.

The global market also affects the Indian rupee. President Donald Trump said that US and Chinese trade negotiators would "very shortly" resume talks in what he described as a breakthrough in the two economic superpowers' trade war. Trump said that Chinese officials had made two " very good calls" and that "they want to make a deal".

Prime Minister Narendra Modi also had a crucial meeting with US President Donald Trump on the sidelines of the G-7 Summit in France. While they are looking for solutions on the trade front, the US is looking to India to reduce its tariffs and open its markets.

Overall the current situation for the currency hints that rupee will become stronger against the dollar soon.

(The author is Head of Research at CapitalVia Global Research Limited – Investment Advisor)

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Sep 1, 2019 08:01 am
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