The INR/USD exchange rate is influenced by a complex interplay of global factors that extend beyond India's borders. These international dynamics are crucial for investors, policymakers, and anyone involved in cross-border trade or finance.
Here are some of the key global factors that affect the INR/USD exchange rate:
When the US Treasury yield increases, investors around the globe have signaled the possibility of hikes in interest rates by the Federal Reserve of the United States and, therefore, the Dollar denominated assets. This increases demand for US-based assets, a stronger Dollar causes a weaker Rupee. For example, signals from the US central bank that future interest rates may have to be raised to curb inflation create a ripple effect where investors crave higher yields in the form of US bonds. This creates an upward demand for Dollars and puts pressure on currencies like the Rupee.
Differential interest rates between India and the United States can have a big bearing on currency values. Higher US interest rates attract foreign investments as investors try to acquire higher returns; the demand for Dollars increases, and the Rupee is pressured downwards. The central banks can dictate inflation and exchange rates by altering interest rates. The better return gives the banks and lenders a positive play, thus drawing foreign capital and pushing the exchange rate upwards.
India's heavy reliance on oil imports makes it vulnerable to fluctuations in global oil prices. Rising crude oil prices have a dual impact on the Rupee: India needs more Dollars to pay for the same amount of oil, increasing Dollar demand, and higher oil prices can widen India's trade deficit, weakening the Rupee. Events such as OAPEC production cuts have always compelled India to borrow foreign currency to meet its oil requirements, which has added further pressure on the Rupee.
A country with a relatively low inflation rate normally experiences a higher currency value, as its purchasing power increases relative to other currencies. Countries with a higher rate of inflation are likely to find their currencies lower in value than their trading partners' currencies but have often become associated with a higher interest rate. The main causes of persistent Indian economy inflation are poor dollar-rupee exchange rates. As prices are increasing at a faster pace in India than in the US, there is a natural tendency for the rupee to depreciate to keep purchasing power parity.
During times of global economic uncertainty, demand for Indian exports may decline, leading to a lower inflow of dollars into the Indian economy. The investors seek "safe haven" currencies like the US Dollar, and withdraw money from emerging markets like India.
There might be a significant geoeconomic shock, like conflict between countries that can be as simple as a trade war among nations or other global health epidemics, that creates uncertainty and upsets investor mood, hence also affecting currency quotes.
The policies of either India or US can have broader international consequences, leading to changes in the exchange rate. Capital controls, and restrictions on the flow of money into or out of India, may affect the supply and demand of Rupees in the forex market. Changes in interest rates by either country's central bank will shift investor preference and capital flows. Trade policies, such as tariffs, trade agreements, or disputes, will affect bilateral trade and, in turn, currency demand.
GDP growth, employment rates, and manufacturing output are some of the economic indicators that affect investor confidence and, hence, the exchange rate. Good economic data raises the expectation level in a country's currency, while bad data do the opposite.
February 5, 2025: 1 USD = 87.32 INR
The rate of USD/INR has increased by 0.51% since February 5, 2025. This indicates that the US dollar is appreciated more than the Indian rupee. The average USD/INR exchange rate for 2025 was 86.376 Indian Rupees per US Dollar. The highest rate of USD/INR exchange rate for 2025 was 87.341 Indian Rupees per US Dollar on February 5, 2025, while the lowest rate was 85.578 Indian Rupees per US Dollar on January 1, 2025.
A variety of interconnected global factors affect the INR/USD exchange rate. Key influences include the strength of the US Dollar, differences in interest rates, crude oil prices, discrepancies in inflation rates, global economic slowdowns, geopolitical events, and government policies. Keeping an eye on these factors is crucial for understanding and predicting fluctuations in the INR/USD exchange rate.