The rupee has been sliding to fresh lows. It’s not just the equity markets, but the ongoing crisis across West Asia has put the rupee under pressure too, as it has breached past the crucial 93 per dollar mark.
In afternoon Asian trade, the domestic currency breached the 93 level mark and fell to a record low of 93.27 against the US Dollar, surpassing its Wednesday’s low of 92.63 against the greenback. The domestic currency markets were closed on Thursday for the local festival of Gudi Padwa.
As per media reports, US President Donald Trump has called for de-escalation in the Middle East conflict, which may boost sentiment for emerging market currencies.
However, the currency remains under pressure as Bloomberg reported that Trump has warned that additional attacks by Iran will result in a blowout of the South Pars energy infrastructure.
3 reasons why the rupee is falling today
Here are the three major factors that are weighing on the currency:
1. High oil prices
Oil prices have cooled off from their record highs but continue to remain highly elevated. The spike in oil prices continues to drive the weakness for the domestic currency as India is one of the key net oil-importing countries.
The global benchmark for oil, Brent crude, is currently trading near the $105 per barrel mark. On Thursday, the price of Brent had surged to a high of $119 per barrel following Israel’s strike on Iran’s South Pars gas field.
“This escalation has brought back serious supply concerns in global energy markets. For India, this is a major concern. The country imports nearly 90% of its energy needs. Higher oil means more dollars going out — and that directly puts pressure on the rupee,” analysts at CR Forex Advisors said.
2. Heavy selling by FIIs
With the surge in oil prices, foreign investor sentiment too has taken a hit. As per data available on NSE for March 19, foreign investors were net sellers of domestic equities worth Rs 7,207 crore.
In March alone, the FIIs have net sold over Rs 80,000 crore in equity markets, marking the heaviest fortnightly selling in 17 months.
Indian equity markets too bore the brunt, as both benchmark indices fell by more than 3% on Thursday, plummeting to their lowest levels in 11 months.
3. Dollar Index near record high levels
The Dollar Index has been trading near its monthly record high levels over recent trading sessions, emerging as one of the safe-haven winners. The index, which measures the strength of the greenback against a basket of six major currencies, slipped to the 99 mark against yesterday’s 100 mark, though it remains near its monthly high.
Alongside the hawkish tone of the US Federal Reserve coupled with dampened hopes over near-term rate cuts, continue to add to the downside for the rupee as it increases demand for the dollar.
Rupee Outlook
As the rupee breached past the 92.50 level, analysts at CR Forex Advisors say that 93.00–93.20 per US dollar should act as strong resistance. On the downside, support is now placed at 92.00–92.20 per US dollar they added.