MUMBAI: Despite the equity markets rallying for the third consecutive day and crude prices remaining flat with a negative bias, the rupee tested new intra-day and closing lows. The domestic currency that has been bleeding since the Iran war began two weeks ago plunged to a record low of 92.63 after falling to 92.67 in the forex market and 92.80 on the MCX.
The currency has lost more than 5% YTD on the back of another 4.9% loss last year. The main trigger, according to currency traders, is the lack of a resolution in reopening the key Hormuz Strait that carries a fifth of global oil supplies since the war on Iran began on February 27. India imports as much as 85% of its energy demand, and nearly half of that was coming through the Strait.
Another reason they said is the continued strengthening of the dollar, which is leasing to more selloff by foreign investors in the equity markets. They have taken out more than $7 billion since the beginning of the year on the back of close to $19 billion rip-off last year. When capital flows out, that puts pressure on the rupee as it widens the current account deficit.
The rupee slumped 23 paise to close at a record low of 92.63 against the dollar. At the interbank foreign exchange, the unit opened at 92.42 and traded in the range of 92.41-92.48 for most of the session before losing ground at the fag end to close at its record low of 92.63 after plumbing 92.76 before close.
Since the war began, the rupee has lost more than 1.5% becoming the worst Asian currency for the second year.
After Iran closed the chokepoint, only a handful of oil and gas tankers have crossed the passage towards India's shores, sending crude prices up by over 45%.
At 1730 hrs, the global crude benchmark Brent was trading nearly flat at $104.17 a barrel. On the MCX, oil was trading 0.25% down at Rs 8,849.
On the other hand, equities made a smart comeback for the third day on the trot, rallying 0.83% at close.
The rupee opened at 92.43 against the dollar, weaker than Tuesday's close of 92.37 and continued to lose ground, slumping 20 paise to a new low of 92.63. The previous closing low was 92.47 on Monday.
After Swiss brokerage UBS India chief economist Tanvee Gupta Jain had said last week that an elongated Middle East crisis would take the rupee down to 95, her counterpart at Goldman Sachs Santanu Sengupta also said he sees the unit touching 95 if the war lasts longer.
"Surging global crude prices, driven by the escalating war, and sustained foreign fund outflows amid heightened risk aversion have kept the rupee under significant pressure. Furthermore, aggressive dollar demand from importers and traders also put further pressure on the currency pushing it down to new lows. As spot rupee-dollar pair maintains a bullish bias, the immediate resistance is likely 92.50–92.70 and a support at 92.05," said Dilip Parmar, senior research analyst at HDFC Securities.
Jateen Trivedi, VP research analyst- commodity and currency at LKP Securities, also has similar reasons for the rupee pains. "Higher energy costs raise import bill, which typically weighs on the rupee. Market participants are also cautious ahead of the US Federal Reserve’s interest rate decision today, which could influence global dollar flows and emerging market currencies. Additionally, concerns surrounding potential disruptions to oil and gas supplies through the Strait of Hormuz are keeping sentiment fragile.”
He warned that if the war lasts longer and energy prices remain elevated, the rupee may continue to face more downside pressure. "In the near term, the weak trading range for the rupee is expected between 91.95 and 92.65," he said.