Crude sweep may send rupee down to 83 to a dollar by October end

Representative image.

Representative image.

The Indian rupee may fall beyond 83 to the dollar by the end of this month due to the overhang of high crude oil prices, a hawkish Federal Reserve, and weakening economic activity, forex traders said.

The rupee weakened past the 82 mark against the dollar for the first time on October 7.

“There remains a possibility of a test for 83 levels in the coming weeks,” said Kunal Sodhani, vice president, the global trading centre, Shinhan Bank. “Considering the hawkish rate trajectory across major and emerging economies, pressure may continue to remain on bond yields, in turn pushing the dollar index higher.”

“The rupee could trade beyond the 83 mark as many things that were favourable to the rupee are now turning against it,” said Dilip Parmar, a research analyst at HDFC Securities. “The rupee could trade lower against the dollar in October and we see 83-odd levels.”

The local currency opened at 82.19 against the dollar and touched an all-time low of 82.4275, after which it was range-bound, possibly due to intervention by the Reserve Bank of India, a dealer with a bank said.

The US Dollar Index, which measures the value of the dollar against a basket of foreign currencies, bounced back to 112.12 from 109.80 in the past month. By 12 pm, it was at 112.325, up 0.12 percent.

Amit Pabari, managing director of CR Forex Advisors, said in a note that the rupee fell sharply towards the close on October 6 amid speculation of large dollar purchases by a nationalised bank for defence-related payments. One foreign bank is estimated to have bought $ 1 billion, which weighed on the rupee in the offshore market.

Pabari added that the breakout of a big figure (Rs 80/dollar) leads to a minimum depreciation of 2 to 2.5 rupees within a month. And this time, it took only 12 sessions since then to cross the 82 mark.

Brent crude oil prices

Brent crude oil prices have been rising after the Organization of Petroleum Exporting Countries (OPEC) and allies including Russia said on October 5 they had agreed to cut production by 2 million barrels per day (bpd).

This put pressure on the rupee as oil importers started demanding more dollars. India is the third-largest oil importer in the world.

Brent was trading at about $ 94 per barrel. Dealers said if oil prices continue to rise, the rupee may hit the 83 mark by next week.

“Brent crude prices remain important to watch out as after OPEC’s production cut, a sharp bounce was seen. Considering the RBI’s inflation trajectory based on $ 100/bbl, any bounce towards these levels will create further pressure on the trade account deficit and balance of payments,” Sodhani said.

RBI watching

Since the rupee started falling, the RBI has used India’s foreign exchange reserves to curb excessive volatility and anchor expectations. India’s forex reserves have declined by 10-12 percent from its peak level, dealers said.

India’s foreign exchange reserves stood at $ 537.5 billion as of September 23.

Some dealers are of the view that the RBI may reduce the intensity of its interventions considering that forex reserves are adequate to cover only nine months of requirements and also because liquidity in the system is lower.

RBI governor Shaktikanta Das said during the monetary policy review that the dollar had appreciated by 14.5 percent against a basket of major currencies during the current financial year up to September 28. This caused turmoil in currency markets globally.

However, the movement of the Indian rupee has been orderly compared to most other countries. It has depreciated by 7.4 per cent against the dollar during the same period – faring much better than several reserve currencies as well as many of its EME and Asian peers, Das said.

He said the RBI does not have any fixed exchange rate in mind. The overarching focus is on maintaining macroeconomic stability and market confidence.

Selling by foreign investors

Additional pressure on the rupee came from foreign portfolio investors who turned net sellers in September due to recession fears in major economies, coupled with monetary policy tightening globally and stubbornly high inflation. They pulled out about Rs 7,624 crore of Indian equities.

Some dealers expect the selling spree to continue and put pressure on the rupee, taking it past the 83 mark.

Foreign investors could again turn sellers amid a hawkish US Federal Reserve, higher crude oil prices, and weakening economic activities, Parmar added.