We all know about recession and it is worse in US and better in India as compared to US, then how come dollar is appreciating with respect to Indian rupee? Don't you think that Indian rupee should go up and US dollar should move down?

There are so many reasons of depreciating rupee, but I would like to explain the first one, which is most important.

Why dollar is moving up and rupee is going down? There has been a recent fall in rupee since some days ago, even two days ago. It was 49.50, then 47.50, 47.10, and now 46.92. Why is this happening?

First Reason - Dollar is in Demand

BRIC countries like India have emerging economy, so a huge percentage of investment in India is from outside the country, especially from US but due to recession in US, big institutions are collapsing and many of them are on the verge of breakdown. They are suffering huge losses in their country. They have to maintain their balance sheets and look strong on all statements, so to recover losses in their country, they are pulling out their investments from India. Due to this pulling out of investment by these big companies from India or in other terms disinvestment, demand of dollar is raising up and rupee is depreciating.

There was a huge interest rate differential between India and US. Now RBI is reducing all kind of rates to increase money supply in market, so deposit rates will also move downwards. It will reduce the rate differential between two countries and affect the fixed investment in India in a negative manner.

Second reason - Collapse of International Trade

If you observe in terms of international trade, commodity prices are crashing at international level.

Importers are trying to accumulate dollars, as they have to pay in terms of dollars and at the end demand is increasing against the rupee. This has not happened yet due to lack of confidence in all kind of markets.

Exporters have a very few orders from outside countries, so there is no matter of converting dollar into rupee thereby decreasing demand for rupee.

Besides the above-mentioned two reasons, there are many other reasons, which I would like share in the comments section below with you and others.

Now rupee is at 46.90 and expected to appreciate further due to huge inflows. The worst sufferer are Indian IT companies including BPOs, call center outsourcing, medical transcription outsourcing, and Indian content writers, especially Indian Adsense publishers like me who also earn in dollars. How will rupee appreciation impact companies?