Why is dollar appreciating against rupee?

Answer 1

The main reason for rupee appreciation is the booming Indian economy due to which more dollars are flowinig into the country. As a result, demand for rupee is increasing in the forex market against dollar.

The general market principle says that when demand of any commodity increases its price increases. Hence in this case when demand of rupee vis a vis dollar is increasing it would mean that value of rupee will increase that is one would need to pay more dollar to get one rupee.

Going again into the reason for more demand for rupee, booming Indian economy means more investments from Foreign institutional investors and also more FDI in India since market of India is expanding and foreign investors see it as a potential future market.

Secondly when US economy is slowing down, to heat up the economy US government is planning to keep the interest rate low. Since Indian interest rate is high in comparison to that in US, more funds are flowing into India to gain the benefit of interest differentials.

Dilip Jhunjhunwala

Answer 2

Because of credit crunch in US, American Investors are selling off their investments in India and taking back the dollars to America.