It’s a good time to buy US dollars, as the rupee flies.

Today, I’m honored to feature a guest post! I’ve found that, as an expat, there is a huge need to understand the conversion between US Dollars and the Indian Rupee as well as the “how’s and why’s” of when to broker the change.

The guest post today answers many of those questions and I’m happy to share it with you!

This post is a look at the climbing Indian rupee, by Peter Lavelle at foreign exchange broker Pure FX.

If you’re an expat in India, you’ll doubtless need to buy and sell Indian rupees, in order to transfer money between your account in India and back home. Given that, the rupee exchange rate is pretty important. So what’s happening to it now?

Well, right now is a great time to sell rupees, and buy US dollars, as the Indian currency gains 8.0% against its US rival in a month. Why is that, and will it continue? That’s what I want to address in this post.

The US Fed comes to the rescue.

One reason the rupee has jumped so high against the greenback this past month is the US Federal Reserve. On September 2nd, it announced its plan to revive the US economy, with unlimited(!) cash injections into the market.

Of course, that’s been a real salve to investors, who had been holding off, with some $3bn entering global stock markets since the announcement. Part of that $3bn has found its way to India, which explains the rising rupee.

India’s current account deficit (CAD) is falling.

Second, the rupee has been rising as India gets its own house in order too. First of all, the current account deficit (which is when imports exceed exports) fell last quarter, declining to 3.9% from 4.5% in the last three months of 2011.

This tells us the Manmohan Singh government is at last taking steps to bring Indian trade to heel. Instead of importing tonnes and tonnes, and building up a huge imbalance (much as the US or UK has done) the government is fighting to ensure that doesn’t happen. That looks responsible.

The Singh government is wooing foreign investment.

Last of all, the rupee has climbed as the Singh government goes all out to attract foreign investment. This includes a raft of new policies in September, such as opening the retail and aviation industries up to 50.0% foreign ownership. In practice, that means you could soon be seeing Walmart in Bangalore.

As for why that makes the rupee climb meanwhile, it goes like this: if the markets want to put money in India, they first have to buy the rupee. That makes it more in demand. And, just as the price of milk rises when it’s more in demand, so too does the value of a currency.

Will the rupee keep moving on up?

So that’s why the rupee has climbed. Will it keep doing so? For me at least, the smart money is on ‘Yes’, as these latest reforms come into practice, making India yet more open to foreign investment.

Furthermore, though the global economy is suffering the equivalent of a bad flu right now, support from the Fed should keep spirits on the financial markets high. All of which, as I say, makes it a good time to buy US dollars!

Get in touch

I do hope you’ve enjoyed reading this post.

If you’d like to find out how what I’ve talked about here affects your Indian rupee transfers, visit us at foreign currency exchange Pure FX. We’d be delighted to help with your enquiry!

© 2012 Gori Rajkumari

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4 thoughts on “It’s a good time to buy US dollars, as the rupee flies.

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