It’s a day of sharp losses for the rupee. The Rupee has crashed to all-time lows and breached past the crucial 94-level mark, hitting a record low of 94.40 against the US Dollar in intra-day trade. The currency has been facing steep decline ever since the start of the West Asia conflict. The sharp surge in oil prices have exerted pressure on the rupee as this led to inflationary concerns worldwide.
The local currency opened at the 94.16 level breaching past its Wednesday’s low of 93.98 against the US Dollar. The domestic currency markets were closed on Thursday on the occasion of Shri Ram Navami.
Currency experts have said that the biggest driver for the Indian currency continues to be the West Asia conflict and more importantly the uncertainty over how it ends.
4 reasons why the rupee slides to all-time lows
The four key factors weighing on the currency include
#1 Uncertainty over the West Asia Conflict
Markets remain on edge as uncertainty over the prolonged tensions between US and Iran, keep emerging markets currencies under pressure. US President Donald Trump gave out contradictory signals over the end of the Iranian conflict stating that he would pause attacks on Iran’s infrastructure.
“This back-and-forth has kept markets cautious. As a result, confidence in a quick resolution has weakened, and that uncertainty is once again weighing on emerging market currencies like the rupee,” analyst at CR Forex Advisors said.
# 2 Rupee slumps as crude climbs
Brent crude prices climbed past $100/bbl as Tehran rejected the US proposal of a ceasefire plan, also WTI crude was quoted near the $93/bbl mark. The high crude prices likely weighed on the currency, fuelling dollar demand.
The dollar index which gauges the strength of greenback against a basket of six major currencies was also holding just near its monthly record high of the 100 mark which added to pressure to the local currency.
“With Brent oil prices again rising to $ 105.75 per barrel, dollar index rising towards 100 and Gift Nifty down by 175 points the rupee is expected to open weak around 94.16 unless RBI does not want it to open lower,” Finrex Treasury Advisors LLP said in its report.
#3 Risk-off sentiment in gold, silver
The continuous pressure and gold and silver prices also impacted currency market sentiment. They fell as sentiment has again become risk-off, though it is still not to the extent we saw three days ago. Gold has fallen below the key $4,500/oz level while silver is trading sharply lower below the $70 per troy ounce levels.
#4 FII outflows weigh on sentiment
The continuous outflows are also impacting currency market sentiment. As per NSE data for March 25, FIIs were net sellers of domestic equities worth Rs 1,805 crore. This brings the total outflow for March well over R 1 lakh crore in just 1 month. This constant outflow of foreign fund is also impacting sentiment.
Rupee outlook – Key levels to watch
This brings to the key concern that how much can the rupee fall further? There are many expectations that the currency may slip to 95/$ levels.
Analyst at CR Forex Advisors pointed out that, “If tensions ease meaningfully, the rupee could see a recovery of around 1 to 1.50 per US dollar. But until there is clarity, volatility is likely to persist. Technically, the 94.00–94.20/$ zone is expected to act as a strong psychological resistance, where central bank presence is likely. 92.80–93.00/$ is emerging as a key support zone.”
