The Indian rupee has started the week on a low note, as on Monday the currency slipped to its record low closing of 95.08 against the US dollar. This marks the first time that the domestic currency has closed past the crucial 95-level mark.
Just last week, the currency had hit an intra-day low of 95.33 against the dollar. Traders have said that increased dollar demand, coupled with high oil prices, added to the pressure on the currency.
RBI may consider dollar boosting mechanism
RBI may introduce steps to mobilise dollar inflows to bolster the country’s foreign exchange buffers, Reuters reported, citing sources.
“There was also news that RBI may be planning to bring a scheme in line with the FCNR (foreign currency non-resident) scheme they had launched in 2013 to mobilize dollars, by which they had brought in $38 billion for a period of three years,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.
He noted that this can bring the dollar-rupee down, as flows are the most important thing that will be required for the pair to come down.
The Reuters report added that the Indian central bank is discussing ways to eliminate the withholding tax for foreign investors on government bonds, which may encourage dollar flows.
Importer hedging and maturing NDF add to rupee pressure
According to another report by international news agency Reuters, importer hedging and maturing of non-deliverable forward contracts added to the pressure on the currency.
Reports had suggested that Bharatiya Janata Party’s victory in West Bengal may lift sentiment for the domestic currency, but the impact remained negligible as the currency extended sharp declines.
US-Iran standoff and oil prices weigh on emerging market currencies
Uncertainty pertaining to the US-Iran conflict continues to add pressure on oil prices, which trade at elevated levels. Market sentiment remains fragile as the US military has said it is guiding ships through the Hormuz route, while Tehran has cautioned against the same, calling it a violation of the ceasefire.
High oil prices increase dollar demand, as oil is predominantly traded in the greenback.
“Rupee continues to be vulnerable to the vagaries of rising oil prices, while all currencies where outflows are happening have made new lows as it closed above 95.00 for the first time in its life,” added Bhansali.
Other oil-sensitive currencies like the Philippine peso also extended losses, down 0.5% as Brent crude futures surged past the $110/bbl mark.
Additionally, FII outflows continue to add pressure on the currency. As per NSE data, foreign investors were net sellers of domestic equities worth Rs 7,411 crore.
Outlook for rupee
“The trend remains weak, with 94.50 acting as immediate resistance and 95.40 as key support in the near term,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.
He added that market focus this week will be on US Non-Farm Payrolls and unemployment data, which could influence dollar strength and drive further movement in the rupee.
