Looking to buy US dollars? Wait for a while
- US dollar is likely to get weaker in the coming months, may hit 66 to the rupee by June
- The US-China trade war is likely to slow down global economy, including US
- For those buying dollars in exchange of rupees, there are other factors at play too
If you are looking to buy US dollars either as an investment or for a travel plan in the future, wait for a while.
The greenback is likely to weaken in the coming months. That's the call from an ICICI Bank as well as Malaysia-based Maybank.
"Appetite for the US dollar is expected to wane from a cyclical perspective as growth in the US economy slows," a report from ICICI Bank said. As the economic growth slows, the market's confidence in a country's currency weakens, hurting its value.
One of the biggest factor for a possible slowdown in US economy is the ongoing trade tussle with China. Both have levied additional tariffs on goods exported from the other country. In December, both countries agreed to hold off on new tariffs for 90 days and negotiate peace. The deadline for a deal is March 1.
"There are signs a trade deal could very well happen between the US and China during the 90-day ceasefire period.
However, we believe they can only reach a weak deal," the Maybank report said.
However, the fall in the value of the dollar may not be much because the trade war between US and China is hurting economies across the world. "There has been a simultaneous weakening in non-US growth relative to expectations," the ICICI Bank report said adding that, "The downtrend in the US dollar has been somewhat more modest than we previously expected."
For Indians, there will be other factors, too, at play. The price of crude oil can alone derail all calculations for the world's fastest growing economy. India imports nearly 80% of all the crude oil it needs, and a spike in prices would mean it has to pay more dollars to get the same amount of oil in the international market. This would weaken the rupee.
The government's handling of finances also affects the exchange rate. Reckless expense to appease voters in an election year will also the hurt the currency.
Foreign fund flows also determine the demand for a currency. If foreigners bring in more dollars to invest in stocks or bonds, the currency will appreciate faster. For example, today (February 5), rupee gained for the first time in three days as investors from abroad made a bet of ₹4.2 billion. The net impact of these factors will decide how much stronger the rupee gets against the American currency in the coming weeks. Here's an estimate from Maybank.
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