Aug 17 2018

USDINR Ideas – Is the Rupee weak at 70?

After a brief period of range bound trading around 68 – 69, rupee has weakened again – beyond the 70 mark. Since it was a level never touched in history, Indian Media (in its customary habit of blowing things out of proportion), started creating a huge hoopla around Rupee’s weakness. In a scenario of massive currency volatility (where some currencies have plunged like a house of cards), has the Indian Rupee really weakened? Let’s take a look:

Following is a rebased chart of the Indian Rupee compared with BRICS (Brazil, Russia, China and South Africa) currencies as well as some Asian currencies. Dollar index (US dollar’s value against international major currencies like Euro, Japanese Yen, Pound Sterling, etc) is also included for a more broad based analysis. All currencies are rebased to 100 and their changes analyzed from 1 Feb 2018 till date.

The “R” currencies, namely Brazilian Real (BRL – Dark Green line), South African Rand (ZAR – Grey line) and Russian Rouble (RUB – Yellow line) have weakened substantially, plummeting by 20% or more. The Asian currencies, Singapore dollar (SGD – Blue line) and South Korean Won (KRW – Light Green line) have declined by around 5%. The Chinese Yuan (CNY – Purple line) has lost 9.2% of its value.

The Dollar Index (DXY – Red Line) has surged by 8.8% (reflecting that Euro, Pound Sterling, etc. have collapsed by a similar percentage).

In this circumstance of global currency chaos, the Indian Rupee (INR – Orange dotted line) has fallen 9.5%. Has it really weakened to warrant such noise??

Exporters: certainly hedge – use forwards, range forwards, vanilla options, etc. What are we waiting for?

Importers: tough times – choose vanilla options over forwards. An option premium is worth investing now.