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Rupee nosedives to 15-month low against dollar as crude oil spikes

06:21 PM Oct 11, 2021 | FPJ Web Desk

Domestic currency nosedived to 15-month low against dollar on Monday as crude oil zoomed towards seven-year high and the greenback hardened in the overseas markets.

At the interbank foreign exchange market, the local currency opened lower at 75.11 and witnessed an intra-day high of 75.06 and a low of 75.39 against the US dollar in day trade.

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The local unit finally settled down by 37 paise at 75.36 a dollar, a level not seen since July 14, 2020, even as the domestic equity market touched record levels.

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The Indian currency for the first time this year settled below the 75 level as fears of high import bill due to costlier crude oil and forex outflows due to firming US bond yields weighed on the local unit. The rupee had fallen by 20 paise to end at 74.99 on Friday.

"The rupee traded weak again, as Black Gold keeps riding north, touching USD 84.20 and inching closer to USD 85.00 per barrel. Going ahead the rupee can be in the range of 75.00-75.60," said Jateen Trivedi, Senior Research Analyst at LKP Securities.

Brent crude futures, the global oil benchmark, advanced 2.08 per cent to $84.10 per barrel as oil producers restrained supplies and leading energy consumers India and China grappled with energy crisis.

The dollar index, which gauges the greenback''s strength against a basket of six currencies, was trading 0.23 per cent higher at 94.28.

Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd., said "The USDINR spot closed at the highest level since 14th July, at 75.35, thanks to a combination of rising oil prices, rising US bond yields, and a strong US Dollar Index. The only missing ingredient remains a weak equity market. If that is obtained, then the upward momentum can increase in USDINR.

"As long as oil prices continue to climb, USDINR can score further gains. RBI should not be bothered much as volatility has been quite low over the past 14 months. At the same time, the weaker Rupee offers RBI an opportunity to lock into greater profits for its long positions in the forward and futures markets. We expect USDINR to trade with an upward bias, within a range of 74.90 and 75.80 on spot," Banerjee added.

"The Indian rupee continued bearish momentum on the back of a stronger dollar, following higher US Treasuries, and a surge in crude oil prices," said Dilip Parmar, Research Analyst, HDFC Securities.

Parmar further said that even after a better risk-on sentiments market with domestic benchmark index at all-time high, rupee is driven by the rising dollar and crude oil prices. The absence of central bank intervention is also weighing on the rupee.

"The Indian rupee drifted lower in Monday''s trade amid the steep rise in crude oil prices and strength in the greenback against other major currencies," said Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking.

US crude prices have continued to firm up zooming towards seven-year highs, amid post-pandemic boom and supply bottlenecks. Besides, a sharp advance in natural gas and coal prices is prompting a switch from these fuels to crude oil, ahead of the winter heating season.

"Weighing further on the Indian rupee is the bet that the Fed will initiate stimulus tapering in November, amid elevated inflation levels despite a slightly weak jobs report for September," Sachdeva said.

Going ahead, the 75.50 mark will remain a key support area for the local unit, from where some relief may be witnessed. On the contrary, any convincing breach of the key 75.50-75.60 zone shall lead to further depreciation for the domestic currency, Sachdeva noted.

According to Emkay Global Financial, "the movement in rupee is mainly driven by the uptrend in crude and DXY. Some cooling off in crude prices and sell side RBI intervention may limit the trend in USDINR spot.

But worries about US inflation are still alive and any upswing in US CPI this week, will boost expectations of an earlier FOMC rate hike next year after tapering, keeping the USDINR spot afloat, it said, adding there lies a strong support around 74.80-74.75, a break of which may push the spot towards 74.50. While, on upside a break of 75.50, may open doors for 75.75.

On the domestic equity market front, the BSE Sensex ended 76.72 points or 0.13 per cent higher at 60,135.78, while the broader NSE Nifty advanced 50.75 points or 0.28 per cent to 17,945.95.

Foreign institutional investors were net sellers in the capital market on Friday as they offloaded shares worth Rs 64.01 crore, as per exchange data.

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