The Indian rupee continues on its losing streak, as the currency has hit a new record low of 95.40 against the US Dollar, surpassing its previous intra-day low of 95.33 it hit last week on Thursday.
The currency weakening comes over the surge in oil prices, which are once again soaring over escalations in Middle East tensions. As per reports, Iran has attacked oil tankers in the UAE, while tanker disruptions in the chokepoint — Strait of Hormuz — involving both Washington and Tehran have also been reported.
Brent crude soars past $114 — adds pressure on rupee
These geopolitical developments led to a rise in the price of Brent crude futures as it crossed the $114/bbl mark. A rise in oil prices increases dollar demand, as oil is predominantly traded in dollars.
Also, India, a net oil importer, faces pressure from the surge in oil prices as it imports nearly 80% of its fuel requirements from the Middle East.
“So, when oil rises this sharply, it directly increases dollar demand. Importers rush in, hedging picks up, and suddenly the pressure builds not gradually, but all at once,” explained Amit Pabari, MD at CR Forex Advisor.
He added that the maturing of non-deliverable forwards contracts also added to the depreciation of the currency.
Dollar Index bounces back
The safe-haven demand for dollars has re-emerged with the rising tensions in the Middle East. Gold prices and silver prices have slipped over the same.
A strong greenback adds pressure to emerging market currencies like the Indian rupee and the Philippine peso, as foreign investors drift away from these currencies, which are deemed riskier.
FPI outflow keeps adding to the pressure
Foreign investors have been constantly pulling out from domestic markets, as between the time period of March and May, FPIs have pulled out more than $20 billion worth of stocks from the domestic markets.
According to NSE data for May 4, foreign investors were net sellers of domestic equities worth Rs 4,539 crore.
Reuters, citing sources from the RBI, reported that the Indian central bank is looking for ways to mobilise fresh dollar inflow, aiming to revive the 2013 FCNR (foreign currency non-resident) scheme. Also, the Indian central bank may ease tax norms for overseas investors.
“If implemented, this could act as a stabiliser,” said Pabari.
Outlook for rupee
“The 95.30–95.50 range is expected to act as a strong resistance in the near term,” notes Pabari. The analyst added that a near-term pullback towards 94.20–93.80 looks likely, although underlying pressure persists due to elevated oil-driven dollar demand.
