The Indian rupee is once again nearing the psychologically important 95 level against the US Dollar. With the domestic currency opening at 94.74 mark, down 0.2% from its previous close of 94.54 per dollar, markets remain cautious whether it will slip further.
Traders quoted by Reuters reported that RBI stepped in to curb the rupee’s fall, as it declined to its weakest level in a month, nearing its all-time record low of 95.22 against the greenback it hit in March.
The macro factors weighing on the currency remain the same, which are:
Elevated crude oil prices
Oil is once again trading near record high levels. Brent Crude futures are trading near the $111/bbl level, while the US benchmark, West Texas Intermediate (WTI) is also trading high quoted around the $99/bbl mark.
The surge in oil prices creates high dollar demand, as predominantly oil is traded in dollars, this further weighs on emerging market currencies like the Indian Rupee.
Uncertainty over Strait of Hormuz
The crucial trade route- Strait of Hormuz, which transits nearly 20% of the world’s global energy flows remains largely closed, leading to a spike in oil price. India, a net oil importer, depends on the Middle East to meet a large chunk of its energy requirements.
Disruptions in the region continue to weigh on oil prices as US President Donald Trump has told his aides to prepare for an extended blockade of Iran, the Wall Street Journal reported on Tuesday, citing US officials.
However one more factor adding to the downside for the currency is
Sun Pharma Organon acquisition – adding pressure to Rupee
On April 27, pharma giant Sun Pharmaceutical announced its acquisition of global healthcare giant Organon & Co. in an all cash transaction valued at $11.5 billion, marking one of India’s largest overseas deals.
The acquisition comes at a time when foreign institutional investors are majorly net sellers of domestic equities. As of April 28, FIIs were net sellers of shares worth Rs 1,835 crore. The deal acted as a significant one-off trigger for the currency.
“Such a large transaction means immediate dollar demand. And when this comes at a time when foreign investors are already pulling money out of equity and debt markets, the imbalance becomes sharper,” explained Amit Pabari, managing director at CR Forex Advisors.
He added that there are currency outflows but no meaningful inflows to cushion them.
Slow IIP data adds stress for the currency
India’s industrial production moderated to a five month low of 4.1% in March, down from 5.1% reported in February. The drag has mainly been attributed to the early impact of the West Asia conflict.
However, the growth in the manufacturing sector eased to 4.3% from 5.9% reported last month, coupled with slower expansion of electricity output to 0.8% from 2.3%. These sectors account for more than 85% of IIP.
The index which hit its 5 month low limits the gain for the currency as Pabari explained, “Higher energy prices, rising costs, and uncertainty are slowly feeding into real economic activity. The impact is no longer just on screens it’s beginning to reflect on the ground.”
Focus on upcoming US Fed policy decision
The US central bank will deliver its policy decision later in the day, with markets pricing in no rate cuts.
“While rates are expected to remain unchanged, the tone will carry more weight than the action,” Pabari added.
The forex analyst said that if the Fed signals concern on inflation and leans toward “higher for longer” rates the dollar could strengthen again, and that would add fresh pressure on the rupee.
Outlook for Rupee.
“For now, 93.50–93.80 remains a strong demand zone, where dips are likely to find support,” said Pabari. He added that on the upside, 94.50–94.80 continues to act as a resistance band.
