With oil nearing the psychological $100-mark again, the rupee came under pressure for the fourth consecutive day, pulling it down to a two-month low and inching closer to its record low of 96.86 on Thursday. However, heavy RBI intervention helped the unit close nearly flat at 96.57, which though is just 29 paise off its record low.
The rupee closed the day with 4 paise loss to settle at 96.57, as heightened hostilities in West Asia kept global crude prices elevated. This also had the broader equity market bleeding for the fourth day in a row as foreign funds are back to selling mode again. Since Monday the market has lost more than 3% while the rupee is trading at two-month low.
“The rupee pulled off a sharp U-turn, erasing its early morning gains as surging oil prices and global risk aversion crushed its momentum,” Dilip Parmar, senior research analyst at HDFC Securities told TNIE.
“Deepening geopolitical anxieties, relentless foreign capital flight from domestic equities, and high dollar demand from importers have created a structural pressure on the rupee. Looking at the charts, the spot rupee-dollar pair is flexing its muscles on a powerful bullish trajectory, holding firm above its newly elevated support floor at 96.10 as buyers lock their sights on a march toward the 97,” he added.
The worst day for the rupee was May 20 when it plunged to a life-time low of 97.86 forcing RBI to unveil many a measure including allowing banks to mop up dollars from the diaspora with no hedging cost on them but on the central bank.
The move as of Tuesday has mobilised $17.4 billion in FCNR-B deposits alone, while other measures like the ECBs and OFCBs mopped up a little over 3 billion, taking the total to $20.7 billion.
Traders said the unit could end the trade nearly flat because of the likely RBI intervention. State-run banks were spotted offering dollars, most likely on behalf of the RBI, they added.
Brent jumped 4% to top the $98 a barrel mark, putting the psychological $100-threshold at a spitting distance, after Yemen's Houthis struck two Saudi oil tankers.
Although Brent prices had dipped to near $70 last month,fresh hostilities between the US and Iran sparked a renewed surge and prompted investors to reload bearish wagers on the rupee.
"Geopolitical tension and the resulting spike in oil prices have led to a recent unwinding of long rupee positions. The rupee may remain exposed to swings in oil prices and risk sentiment," BofA said in a note.
"Apart from widening the current account deficit, the stagflationary impact of higher oil prices leads to portfolio outflows from both equity and debt markets," they added.
