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Rupee’s appreciation may not last long

In the past one week, the market was awed by the strengthening of Indian rupee with respect to US Dollar. The rupee has emerged as one of the top performing currencies in Asia. In the 2017 year so far, the rupee has gained around 5.5%.

The investors out there in the market have been drawing various impacts of rupee appreciation on the Indian exports. It is obvious that exports play a vital role in any economy and the policies in that economy should support it, but the country should not encourage exports at any cost. The investors in the markets have to learn the impacts of exchange rate fluctuations on the capital account of the country’s external transactions and stop worrying too much about the exports.

One question that is being asked by many investors is that what is driving the rupee’s upward rally. Currently, the overall bias in the Indian markets is positive taking cues from the forecasts of global growth in general by many economists. The major indices in the global equity markets are at their record highs which lead to bolster the investor sentiments. The rising foreign direct investment in the country is majorly contributing to the rupee’s gains.

The majority of the economists in the country have been forecasting that the Rupee’s gains are likely to last for the next few months. Once the US Dollar starts strengthening owing to Donald Trump’s tax reforms and Fed’s policies to get rid of toxic assets from its balance sheets, the rupee is expected to incorporate some corrections.

Meanwhile, many import oriented sectors in the country like petroleum, crude oil, metals, Gems and Jewellery and Chemicals are enjoying the gains of rupee appreciation.