What is US dollar index Effects on Indian Markets ?

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 What is US dollar index?

The US dollar index is used to measure the value of US dollar against a basket of six major worth currencies of the US’ significant trading partners. These currencies are Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona. The value of the index an indication of the dollar’s value in global markets. A higher reading means a stronger dollar. 

The dollar index was established in 1973 after the Bretton Woods Agreement dissolved with a base of 100. 

The Euro makes almost 57.6 percent of the basket and is the largest component of the index followed by Japanese Yen with 13.6 percent. GB Pound has 11.9 percent weightage, Canadian dollar 9.1 percent, Swedish Krona 4.2 percent and Swiss Franc has 3.6 percent weightage.

How does it affect Indian markets?

The Indian rupee (INR) is not included in the basket of currencies in the dollar index However, any change in the index has an impact on the rupee as well. The appreciation or depreciation of rupee against the dollar impacts the foreign fund flow into Indian equities. The strength and weaknesses in dollar also affects the profitability of Indian companies which either earn a large chunk of their revenues in dollars, or import key raw material. The commodities and dollar-denominated corporate debt are also impacted. 

Where the dollar index weakens, the rupee rises against the USD and vice-versa. When USD falls against the rupee, the foreign institutional investors (FII) and foreign portfolios investors (FPI) get better returns on their dollar investments. 

Among companies, the exporters tend to benefit from the rising USD and depreciating INR. The IT and Pharma companies in India are major exporters of goods and services and receive most of their revenue in USD terms. 

India is a major importer of crude oil. If the dollar rises, the crude oil gets costlier. It will affect the profitability of the oil importers and Indian refineries such as IOC, HPCL and BPCL.


Wise investing 

Growth with learning 




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