Today’s article is to analyze the impact of Dollar on Indian Stock Market. If you understand the correlation among the foreign currencies like dollar, rupees and Indian stock market, it will be easier for you to trade and monitor the market. First, Let’s come to the relation between Rupee and Stock market. There is a positive correlation between Indian Rupee and the stock market. The relation forms of a positive cycle, an important microeconomic factor of all time. Now, move on to the relation between the dollar and the stock market that is always in an inverse relationship. The article will cover the details of it and help you to identify the relationship well.
Impact of Dollar on Indian Stock Market
I have already stated above that there is an inverse relationship between the dollar and the stock market. If you monitor the past 10 years data that shows both the NIFTY index AND USD movements, they share a strong opposite relationship. If USD goes up, the NIFTY depreciates and vice-versa. However, the impact of dollar index is more noticeable in short-term. When dollar index falls, FIIs (Foreign Institutional Investors) invest more in Indian stocks as they expect higher dollar returns and when it rises, they invest less as the return is low. Technical analyst can easily compare dollar index with NIFTY 50 in order to find out the next supporting or resistance level and the present scenario of the market. As a result of rising dollar value, the overall NIFTY get to suffer. There are few sectors in the Indian stock market that suffer a lot in comparison to other sectors. A rise in dollar index is likely to cause a drop in share prices of companies in cyclical sectors (domestic consumption-oriented sectors, e.g. Banking, Automobiles, Oil and Gas, Capital Goods, Metals etc).
Therefore If you are a regular investor, you can get benefits from tracking or comparing the dollar index with NIFTY index in technical analysis.
Comparing 2 Charts Side By Side
I am providing a chart below. From the given chart you will be able to compare NIFTY 50 with USD index. This COMPARE feature is only available in Zerodha Kite.
In the above chart, it is clearly visible that the two lines build up an inverse relationship. The white line considers as NIFTY index while the yellow line is USD index. There is an immense gap between the two lines here. When NIFTY goes up the USD index will certainly go down and vice versa. According to today’s market rate, NIFTY stands at 10,805.15 while USD is at 68.12. Based on many of the well-known technical analysts‘ research, if the USD value goes down or falls below 67, the NIFTY will surely rise to 11,000. They consider 67 as the support level and after the support level is broken, NIFTY will rise. Their second assumption is if USD falls at 65 an “M” pattern may appear, called the double top pattern.
Recently we noticed that RBI policy meet causing problems for the rupee. The rupee has slipped from its near-one month high to close at 67.11 against the US dollar and the dip was because of the demand for the dollar from banks and importers.
So, let’s hope for the best and expect a depreciation of the USD so that the stock market get a scope to rise. After breaking the next support level at 67, we will give an update based on the Impact of Dollar on Indian Stock Market.