What Caused the Increase in CAD to INR Exchange Rate on 31st January 2023 (2nd Half of January 2023)?
The value of the Canadian dollar has been fluctuating against the Indian rupee, with 1 CAD being worth 60.68 INR as of recent. The fluctuation can be attributed to various factors including an overvalued currency, foreign capital imbalance, rising gas prices, and increased demand. The original price range for the product was 50-55 INR, but has now been increased to 60 INR due to these factors.
Several factors affect the CAD to INR exchange rates:
1. Crude Oil
India has a large population and relies heavily on crude oil, making its cost a good indicator of the global economy. The cost of crude oil reached a high of $110.5 CAD on January 23, 2023 and dropped to $103.64 CAD on January 30, 2023. The fluctuating nature of the cost makes it unreliable, but a drop in price would make production, transportation, and sale more financially viable. To strengthen the value of the Indian rupee, the government should decrease currency production.
Canada also heavily relies on crude oil, with projected earnings from selling it expected to increase by 2022. Their Q2 2022 crude oil imports were valued at CAD 1,754,000.00. The strength of the Canadian dollar against the US dollar may rise if imported crude oil prices increase. However, the decline in the value of the Indian rupee compared to the Canadian and US dollars is expected to persist.
2. Commodity Prices and Import/Export
Canada and India have made international purchases in the past including energy sources, minerals and metal ores, petroleum products, chemicals, and plastics and rubber. The CAD/INR exchange rate is heavily influenced by these factors, with a country's economy affecting its currency's value. Canada spent $9,702 billion on energy-related goods in August 2022 and had positive trade, reflected in the strength of the Canadian dollar compared to the US dollar. However, prices have been declining since June 2022, falling from 32.4% to 7.5% in December 2022.
India has a trade deficit with Canada, with Canadian imports worth C$81.91 billion compared to Indian exports worth only $45.02 billion, causing the depreciation of the Indian rupee and rising prices.
The Indian rupee has weakened compared to the US and Canadian dollars and inflation has led to price increases from August 2022 to December 2022, with a rise of 174.3 basis points.
3. Interest rates :
The Bank of Canada has raised interest rates by 100 basis points to help Canadians withstand the current economic challenges. They expect inflation rates to reach a maximum of 2% by 2024 and anticipate a further increase in interest rates in March 2023 due to rising inflation. The interest rate rose from 2.5% in June and August 2022 to 4.25 in November 2022, an increase of 0.75 percentage points.
The Reserve Bank of India raised interest rates by 50 basis points to control inflation and reach a target of 3% by 2024. The interest rate increased from 4.9% in June 2022 to 6.5% by December 2022.
Interest rates have increased, making it more difficult to obtain funds, due to shifts in inflation and changes in inflationary expectations. Inflation has resulted in a rising cost of living and decreased purchasing power.
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4. Inflation rates
The inflation rate is a measure of the stability and purchasing power of money. Inflation is a current global issue, affecting some countries more severely than others. In Canada, the inflation rate increased by 5% in a year due to the pandemic, but the Bank of Canada's measures to combat inflation have led to a decrease in consumer prices and a thriving economy.
The cost of living in India has been rising consistently since September 2021, with the inflation rate reaching a peak of 5.72% in December 2022. The Indian economy experienced significant price increases in March, April, and May of 2022, despite a slow start to the year.
In India, rising inflation is a concern and the RBI and the government are unable to control it due to the weakening state of the Indian rupee.
5. Unemployment rate and Job Availability
The value of a country's currency is impacted by employment and unemployment rates. Canada's unemployment rate improved from 5.4% in August 2022 to 4.9% in June 2022, but there is still a need for more job opportunities. As the labor force expands, domestic investment and inflation decrease, leading to an improvement in overall economic conditions.
The unemployment rate in India increased from 6.8% in July 2022 to 8.2% in August 2022, but it's expected to drop to 6.4% by September 2022. Despite the easing of hiring restrictions by some multinational corporations, the high unemployment rate and decreased consumer spending show a lack of international investment in the country.
6. Budget deficit and national debt levels
Canada's economy is thriving as the country spent less than predicted in the first quarter of the year, resulting in a decrease in external debt and a rise in the value of the Canadian dollar. Exports have exceeded imports, leading to a positive trade balance. The prosperity of the economy reflects the success of the Canadian dollar.
India has a higher national debt and trade deficit compared to Canada. This has resulted in a decrease in the value of the rupee and an increase in inflation.
7. Politics and international policies
The stability of a government affects the value of its currency. India has faced criticism due to various factors like religious diversity, high taxes, and political instability, leading to a decrease in the value of the rupee. The Canadian dollar has performed better than the Indian rupee but still worse than the US dollar. Both governments aim for stable currencies, but unexpected events can affect their value. The Indian rupee is expected to continue declining in value.
Google Source: CAD to INR Exchange Rate Up today on 31st January 2023