Finance, Forex and Investments

Why US Dollar rate decreasing day by day compared with indian rupee?

Currency Vs Dollar

Public Comments

1. There are myriad of reasons for this, - Indian economy is growing and there for more us dollars are flowing into India as more Americans are investing in India, this in turn makes American goods more attractive to Indian consumers and thus a return of favor as more American products are bought by Indian consumers - Another reason could be that American economy is currently undergoing a credit crunch, as the housing market is in turmoil .. and the Indian economy still continues to grow making American products attractive to foreigners .. but there is nothing to worry about the falling American dollar as it actually works in favor of Net exports (US)= Exports-imports, thus exports grow but to the Indians a falling dollar make outsourcing jobs to India less attractive.. but its a cycle of events and it does not really spell disaster or elation for either country.
2. In the international money markets, the value of one currency relative to another is set by supply and demand. The US imports a lot more than it exports. Imports release more dollars into the market (supply) when payment is made, exports remove dollars from the market (demand) when the other country makes payment to the US. Since the US imports more than it exports, the supply of US dollars in the market is greater than demand. Whenever the supply of any commodity is greater than its demand, its value reduces. This is what has happened to the dollar. Previously the US dollar was used as an international currency to settle transactions between any 2 countries, but the rise of the Euro has reduced that demand as well. The US economy is in recession (OK, officially it is only on the verge of a recession), which means local business is producing low return on investment, so money is flowing out of the US to be invested in other countries where the economy is doing much better – think of how the Indian Sensex scaled dizzy heights when the US Federal Reserve announced a rate cut last year. This also increases the supply of US dollars in the market. As a consequence of the above, the US dollar has been steadily declining in value against other currencies. While the Indian rupee is not the only currency that is affected, some countries are trying to fight this decline, because it makes their exports more expensive, e.g., China is propping up the value of the dollar against its currency by buying up large quantities of the US dollar from the international market (increasing its demand). The drawback of this method is that it releases huge quantities of the Chinese currency into the market (because China gives its currency to get dollars in return), causing inflation in China. In India also, the RBI does conduct open market operations to stabilise the value of the dollar against the rupee, but the scale of such operations is limited, because India's inflation rate is already way above the RBI's safety zone of 5% and climbing, so any intervention that will push inflation up further can be used only in small doses.