Currency woes deepen as oil fears drive rupee to historic lows

Mumbai: The rupee extended its losing streak Monday to close just above the psychologically significant level of 94/$. The currency closed at another record low of 93.97/$, with only dollar sales by the Reserve Bank of India (RBI) preventing a slide beyond 94/$, traders said.

Sentiment is weak for the currency amid increasing crude oil prices and concerns the West Asia conflict could disrupt energy supplies for longer - and oil higher for longer.

The rupee had previously closed at 93.71/$.


"The way the rupee is moving, the 95/$ level is not far. But now that Donald Trump has extended his 48-hour deadline after talks with Iran, we may see a mild appreciation tomorrow," said Anil Bhansali, head of treasury, Finrex Treasury Advisors. "But then on the other hand, Iran has indicated there was no such talk."

Brent crude oil prices were up $1.15, or 1%, at $113.34 a barrel, while Crude Oil India Basket was at $150 per barrel, implying that India is paying a premium of $36 per barrel.

There has been a broad based risk-off sentiment across asset classes globally amid the ongoing conflict, while the dollar index has strengthened to 100.

"The situation is volatile, and weakness is expected if there are developments that further escalate tensions," Bhansali said. "RBI did protect the 94/$ level but we are close and may breach 94/$ soon."

Forward premiums have also risen that are reflecting the increase in risk towards a weaker rupee. The 1-month forward premium was at 5.03% on Monday, versus 4.58% the previous day. While the 1-year premium was at 2.90% from 2.83%.

"We saw some RBI intervention today, but it was very mild. Many traders expected interventions in the off-shore market before domestic markets opened, but that did not materialise," said the chief dealer at a public sector bank. "When the RBI protects a level, there is some fear among traders and positions are not built beyond certain key levels. But as key levels are broken one-by-one, then people will build positions above key levels too." Asian currencies lost between 0.1% and 0.8% on Monday amid a 'sell everything' mood, traders said.