Rupee slumps 33 paise to 2-week low on high crude prices, rate hike worries

Mumbai, Jan. 18 (PTI): Continuing its fall for the third straight session, the rupee on Tuesday slumped by 33 paise to close at a two-week low of 74.58 against the US dollar as a strong American currency and elevated crude oil prices continue to weigh on investor sentiments.

Forex traders said muted domestic equities and dollar buying by banks on behalf of importers also dragged the local unit down.

At the interbank foreign exchange market, the local currency opened at 74.36 against the American currency and witnessed an intra-day low of 74.60 during the session.

The rupee finally settled at 74.58, down 33 paise over its previous close of 74.25 against the greenback. The rupee had previously closed at this level on January 4.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.09 per cent up at 95.34.

“Higher crude oil prices and risk-off sentiments following a surge in bond yields are enough for the rupee to become the worst-performing currency among Asian currencies,” said Dilip Parmar, Research Analyst, HDFC Securities.

Parmar added that “strong dollar demands have been seen from oil importers after Brent crude oil prices started quoting above USD 87 a barrel on the back of supply worries”.

“Going ahead, the pullback rally in USD/INR may continue for a few more days as sentiments turn favourable. Spot USD/INR has crossed and sustained above the near-term hurdle of 74.50, the 100 days simple average, has now opened the way for 75 levels while support has been shifted to 74.25,” he said.

Meanwhile, Brent crude futures, the global oil benchmark, jumped 0.99 per cent to USD 87.34 per barrel.

On the domestic equity market front, the BSE Sensex ended 554.05 points or 0.90 per cent lower at 60,754.86, while the broader NSE Nifty declined 195.05 points or 1.07 per cent to 18,113.05.

Foreign institutional investors remained net sellers in the capital market on Monday, as they offloaded shares worth INR 855.47 crore, as per exchange data.

“The Indian rupee has come under pressure amid a rebound in the greenback from two-month lows and a relentless upside in crude oil prices, wherein they have surged by close to 13 per cent since the beginning of the year,” Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking Ltd.

Another headwind for the domestic currency is the rising trade deficit, as it has widened by 37.92 per cent year-on-year in December 2021, Sachdeva said.

“More so, the threat of aggressive rate increases by the US Fed looks to further weigh on the Indian rupee, and we envisage the local unit to drift lower towards 75.20 odd levels in coming days,” Sachdeva added.

In the last three trading sessions the rupee has lost 68 paise against the greenback.

“The Indian Rupee depreciated against the US Dollar on Tuesday weighed down by a rise in global oil and weak domestic equities,” said Sriram Iyer, Senior Research Analyst at Reliance Securities.

Higher oil prices will re-stoke inflation risks and concerns about high trade deficits in the country, Iyer said.

Meanwhile, most of the Asian peers ended weaker on Tuesday while most of the emerging market peers were trading weaker and weighed on the local unit.