The Indian rupee is back in the red after having appreciated in recent weeks due to Reserve Bank of India’s (RBI) measures and intervention. The currency has given up most of the gains it recorded after the RBI and the government announced a coordinated set of measures aimed at attracting foreign capital.Now, the renewed US-Iran tensions are driving crude oil prices higher, putting pressure back on the rupee. The domestic currency ended Monday at 95.62 against the dollar, its weakest closing level since June 8. On Tuesday, the currency started trading with a 48 paise fall versus US dollar, falling past the 96 level.
Rupee resumes depreciation
The rupee has weakened by more than 0.8% so far in the current fiscal year. On Monday, the one-month forward premium on the rupee stood at 3.17%, whereas the one-year forward premium was 2.83%, according to an ET report. On Monday, the RBI stepped into the market to limit the rupee’s decline as it came close to the 96-per-dollar mark. Traders said market expectations for the near-term trading range have also shifted towards weaker levels around 96. “Escalating geopolitical risks prompted investors to move into safe-haven assets, boosting the US dollar and weighing on the rupee. State run banks were spotted selling dollars, likely on behalf of the RBI, which brought the rupee to 95.57 levels, which was also the strongest level on Monday,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.Investors will now turn their attention to the US Consumer Price Index (CPI) inflation data due on Wednesday, as the figures are expected to influence the next move in the dollar index and other global currencies.Traders said the rupee is likely to remain highly responsive to fluctuations in oil prices, the direction of foreign investment flows and movements in the dollar index over the near term.“Global factors, especially oil prices, Federal Reserve expectations, and portfolio flows, are likely to dominate near-term direction. At the same time, India’s trade deficit, corporate dollar demand, and external payment obligations continue to create structural demand for dollars,” said Kunal Sodhani, head of treasury at Shinhan Bank India.
