There is no stopping the Indian rupee. It has now fallen to an all-time low below 96 per dollar. It hit a record low of 96.13 against US dollar in the intra-day session.The sharp downward swing in the currency was a direct impact of the oil prices nearing $110 per barrel, deepening challenges for India’s external sector, which have started to reflect in economic indicators.
So far this year, the currency has depreciated by nearly 7% and has weakened by 1.5% just this week, proving to be the worst performing Asian currency.
The domestic currency fell 0.4% to hit its all-time low of 96.13 per US dollar, eclipsing its previous all-time low of 95.95 in the previous session. Hawkish comments from US policymakers, better than expected US economic data and stalemate on Iran war from the Trump-Xi summit added to the pressure.
The currency had opened at weak around 95.74 levels and continued its downward spiral given the crude spike and Iran-US impasse and ended Friday’s trade at 95.96 per dollar.
Elevated crude prices keeps currency on edge
Oil prices have been trading at elevated levels for nearly 11-weeks now as the chokepoint- Strait of Hormuz, which transits nearly 20% of the global energy flows remains largely closed. Over the past few weeks oil has been over the $100 per barrel mark.
Brent crude was priced at $109 per barrel mark, while the US benchmark, West Texas Intermediate, was quoted near the $105 per barrel level. High fuel prices have deepened concerns over supply disruptions linked to the West Asia conflict.
High oil prices weigh negatively on emerging market currencies like rupee, as oil is predominantly traded in dollars.
Persistent FPI outflow adds to the downside
So far this year, foreign investors have pulled out more than Rs 2 lakh crore worth of equities from domestic markets. This surpasses previous year’s outflow of Rs 1.54 lakh crore
Currency market experts have said FIIs are venturing into the markets of South Korea and Taiwan over their AI boom, which is adding to the downside for rupee.
As per NSE data for May 14, FIIs were net seller of equities worth Rs 146 crore
US-China summit yields no fruitful results
Markets were weighing fruitful signs of progress in the US-China summit, with a hope of re-opening the Strait of Hormuz. While US President Donald Trump described his talks with Chinese President Xi Jinping as ‘incredible’, the waterway passage remains largely closed, keeping oil prices at elevated levels.
“Dollar was singularly up against all currencies/commodities this afternoon as not much came out from the much hyped Trump-Xi Summit,” said Anil Kumar Bhansali, head of treasury at Finrex Advisors.
Asian currencies trending lower
Most Asian currencies were also down weighed by high crude prices, as the Chinese Yuan (CNH) fell slightly to 6.81 from 6.78 against dollar, while the Indonesian Rupiah slipped to record low of 17613, and the South Korean Won was at 1500 against the US Dollar.
Domestic indices give out gains– end in red
Selling pressure was seen in domestic benchmark indices as well, which opened in green but ended the session in red. Indian markets closed Friday’s trade on a lower note, giving up all the gains. The Nifty 50 ended 46 points or 0.19% lower at 23,644, while the Sensex dropped 160 points or 0.21% to settle at 75,238.
Near-term outlook
Analyst have limited the scope of upside for the domestic currency. “The weakness in the rupee is likely to continue. So long as crude prices remain elevated and FPIs continue to sell rupee will weaken,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments.
Over the near term, the support for currency is placed at 95.50 while 96.30 is expected to act as the resistance level, Bhansali added.
