Two Much! Dollar demand, rising oil push rupee to new closing low

Mumbai: The rupee ended at a record closing low of 94.85/$ Wednesday, pressured by high oil prices and a persistent dollar demand, despite the central bank's best efforts to keep public oil companies beyond the spot dollar market. The rupee had previously closed at 94.54/$.

"Higher oil prices are significantly increasing India's import bill and inflation risks, limiting any meaningful recovery in the rupee. The currency is consistently facing selling pressure on rebounds, indicating a lack of support at stronger levels," said Jateen Trivedi, research analyst - currency at LKP Securities.

The Reserve Bank of India (RBI) stepped in the market to intervene and contain further deprecation, as the central bank would probably want to hold off the rupee from closing weaker than the psychologically significant 95/$ mark, traders said. The rupee's intraday record low stands at 95.22/$.


"In the near term, 94.40/$ is likely to act as resistance, while 95.25/$ remains the next key support, with the rupee expected to stay volatile and driven by crude and capital flows," Trivedi said.

Brent crude rose more than 3% to nearly $115 per barrel, weighing on other oil-sensitive Asian currencies such as the Philippine peso and Indonesian rupiah, both of which hit record lows on Wednesday, according to Reuters.

Anil Bhansali, head of treasury at Finrex Treasury Advisors agreed with Trivedi. "The main factor that is determining the value of rupee has been the oil, apart from the FPIs selling," Bhansali said. He expects the rupee to trade between 94.50/$ and 95.00/$ on Thursday.

Traders expect RBI to intervene more aggressively to prevent the rupee from weakening beyond the 95/$ psychologically significant level. It was around these levels in late March that the central bank introduced curbs on banks' speculative trading activity in an effort to stabilise the currency.