Rupee slips to 95.74 as market pressures persist
The rupee weakened to around 95.74 against the US dollar on Monday as subdued domestic equities, elevated crude prices and uncertainty surrounding fresh US sanctions on Iran kept currency traders cautious.
The currency closed at about 95.7450 per dollar, extending pressure seen during the previous week while remaining confined to a comparatively narrow trading band. Persistent dollar demand from importers was partly offset by foreign currency inflows and intervention by the Reserve Bank of India, limiting the extent of depreciation.
The closing level was weaker than Friday's 95.6950, when the rupee had ended almost unchanged on the day but recorded a decline of roughly 0.3% for the week. The move on Monday kept the currency within sight of the psychologically important 96-per-dollar level, which traders have watched closely during bouts of volatility linked to Middle East tensions.
The Reserve Bank of India has remained active across currency markets, with dollar sales through state-run banks helping curb speculative pressure. Its interventions have contributed to unusually low short-term volatility despite substantial swings in crude oil and other global assets.
Two-week realised volatility in the rupee has fallen below 2%, while one-month implied volatility has eased to about 4%, below its year-to-date average of roughly 5.2%. Dealers expect the currency to remain broadly within a 95.50-96.50 range in the near term unless geopolitical developments trigger a sharper move in oil or the dollar.
Domestic equity weakness added to the cautious tone. The Sensex fell about 172 points to 77,369.11, while the Nifty 50 slipped below 24,250. Investors remained wary ahead of details of Washington's planned sanctions against Tehran, even as crude prices retreated from their latest highs during Monday's session.
Brent crude fell below $93 a barrel during trading after gaining more than 5% in the previous week. Prices had climbed as negotiations involving Washington and Tehran reached an impasse and uncertainty persisted over shipments through the Strait of Hormuz.
The pullback in oil offered some relief to the rupee but did little to remove the broader risk confronting the currency. India imports close to 90% of its crude requirements, leaving the economy sensitive to sustained increases in energy costs. Higher crude prices raise the country's import bill, increase demand for dollars from refiners and can place additional pressure on inflation.
Brent has remained around the low-$90s despite disruptions surrounding Hormuz, substantially above levels that prevailed before the escalation in Middle East tensions. Market forecasts have also shifted higher, with expectations that persistent supply constraints could push Brent towards $100 a barrel later this year.
Iran-related risks have become an important driver of currency and bond markets. Washington is preparing tougher economic sanctions aimed at increasing pressure on Tehran and potentially restricting its oil trade. Iran has warned that intensified economic pressure could have consequences for energy flows from the Gulf, adding uncertainty to a region that remains crucial to global petroleum supplies.
The dollar also strengthened modestly against a basket of major currencies, rising about 0.2% and adding pressure on several Asian currencies. Regional equity markets were mostly weaker as investors reduced exposure to risk ahead of the US sanctions announcement and key economic signals from the Federal Reserve.
Capital inflows have nevertheless provided the rupee with an important cushion. Measures introduced by the RBI to strengthen external liquidity have attracted tens of billions of dollars, boosting the central bank's capacity to manage disorderly currency movements.
The central bank's large foreign exchange reserves and continuing inflows have enabled it to resist abrupt declines, while importer hedging and month-end corporate dollar requirements remain sources of downward pressure. Its interventions have also prevented the rupee from moving decisively beyond 96 per dollar during periods of heavier selling.
The currency closed at about 95.7450 per dollar, extending pressure seen during the previous week while remaining confined to a comparatively narrow trading band. Persistent dollar demand from importers was partly offset by foreign currency inflows and intervention by the Reserve Bank of India, limiting the extent of depreciation.
The closing level was weaker than Friday's 95.6950, when the rupee had ended almost unchanged on the day but recorded a decline of roughly 0.3% for the week. The move on Monday kept the currency within sight of the psychologically important 96-per-dollar level, which traders have watched closely during bouts of volatility linked to Middle East tensions.
The Reserve Bank of India has remained active across currency markets, with dollar sales through state-run banks helping curb speculative pressure. Its interventions have contributed to unusually low short-term volatility despite substantial swings in crude oil and other global assets.
Two-week realised volatility in the rupee has fallen below 2%, while one-month implied volatility has eased to about 4%, below its year-to-date average of roughly 5.2%. Dealers expect the currency to remain broadly within a 95.50-96.50 range in the near term unless geopolitical developments trigger a sharper move in oil or the dollar.
Domestic equity weakness added to the cautious tone. The Sensex fell about 172 points to 77,369.11, while the Nifty 50 slipped below 24,250. Investors remained wary ahead of details of Washington's planned sanctions against Tehran, even as crude prices retreated from their latest highs during Monday's session.
Brent crude fell below $93 a barrel during trading after gaining more than 5% in the previous week. Prices had climbed as negotiations involving Washington and Tehran reached an impasse and uncertainty persisted over shipments through the Strait of Hormuz.
The pullback in oil offered some relief to the rupee but did little to remove the broader risk confronting the currency. India imports close to 90% of its crude requirements, leaving the economy sensitive to sustained increases in energy costs. Higher crude prices raise the country's import bill, increase demand for dollars from refiners and can place additional pressure on inflation.
Brent has remained around the low-$90s despite disruptions surrounding Hormuz, substantially above levels that prevailed before the escalation in Middle East tensions. Market forecasts have also shifted higher, with expectations that persistent supply constraints could push Brent towards $100 a barrel later this year.
Iran-related risks have become an important driver of currency and bond markets. Washington is preparing tougher economic sanctions aimed at increasing pressure on Tehran and potentially restricting its oil trade. Iran has warned that intensified economic pressure could have consequences for energy flows from the Gulf, adding uncertainty to a region that remains crucial to global petroleum supplies.
The dollar also strengthened modestly against a basket of major currencies, rising about 0.2% and adding pressure on several Asian currencies. Regional equity markets were mostly weaker as investors reduced exposure to risk ahead of the US sanctions announcement and key economic signals from the Federal Reserve.
Capital inflows have nevertheless provided the rupee with an important cushion. Measures introduced by the RBI to strengthen external liquidity have attracted tens of billions of dollars, boosting the central bank's capacity to manage disorderly currency movements.
The central bank's large foreign exchange reserves and continuing inflows have enabled it to resist abrupt declines, while importer hedging and month-end corporate dollar requirements remain sources of downward pressure. Its interventions have also prevented the rupee from moving decisively beyond 96 per dollar during periods of heavier selling.