Mumbai: The rupee has reversed most of its gains made after the Reserve Bank of India and the government unveiled a coordinated package of measures to attract foreign capital, as renewed tensions between the US and Iran pushed crude oil prices higher. The currency closed at 95.62 per dollar on Monday, its weakest closing level since June 8, versus its previous close of 95.32 per dollar.
Intervention by the RBI helped contain further losses, as the currency traded close to 96 per dollar levels. The rupee traded in the range of 95.86 and 95.57 on Monday. Expectations of future range too, have shifted weaker to 96 levels, traders said. The rupee is expected to be between 95.30 and 96.00 on Tuesday.
"Escalating geopolitical risks prompted investors to move into safe-haven assets, boosting the US dollar and weighing on the rupee. State run banks were spotted selling dollars, likely on behalf of the RBI, which brought the rupee to 95.57 levels, which was also the strongest level on Monday," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
The rupee has depreciated over 0.8% so far in the fiscal year. Brent crude rose 3% to $79 per barrel on Monday, while the dollar index was around 101. The rupees one month forward premium was at 3.17% and the one year forward premium stood at 2.83%
"Global factors, especially oil prices, Federal Reserve expectations, and portfolio flows, are likely to dominate near-term direction. At the same time, India's trade deficit, corporate dollar demand, and external payment obligations continue to create structural demand for dollars," said Kunal Sodhani, head of treasury at Shinhan Bank India.
Market participants will now closely watch the upcoming US CPI inflation data, scheduled for Wednesday, which would determine the next move in the dollar index and global currencies.
In the meantime, the rupee continues to remain sensitive to oil price spikes, foreign investor flows and direction of the dollar index, traders said.
