The list of negatives for rupee value against the US dollar is increasing by the day. It all started with higher crude oil prices and now there are talks of an imminent trade war with the US where India enjoys a trade surplus.
Where is the Rupee headed? In just six months it depreciated by over 7 per cent from Rs 63 levels in January this year to Rs 68 levels. This sharp depreciation places the Indian Rupee among the worst performers in emerging markets.
With yields up in the US market, the resultant outflow of US dollars from emerging markets including India, compounded by weak domestic macros, India faces a perpetual trade deficit. A trade war with the US will weaken the Rupee further as India enjoys a trade surplus with the US. If our exports are hit, the trade deficit and CAD will further widen, while higher interest rates abroad will restrict the dollar inflows into India. The long-term outlook for the Indian rupee looks negative.