The Indian rupee slipped 7 paise to 95.68 against the US dollar in early interbank trade on Tuesday, according to Business-Today, as Brent crude futures climbed above $91 a barrel and steady dollar demand from oil companies weighed on the currency.
The rupee lost 19 paise in the previous session, closing at 95.61 on Monday, and opened Tuesday at 95.68 at the interbank foreign exchange market, Business-Today reported. Forex traders pointed to higher oil prices as one of the key pressures on the currency, with Brent futures up 0.52% at $91.34 a barrel. The elevated crude prices are increasing demand for dollars linked to oil payments, the report said.
Rupee under pressure as crude tops $91
Market participants were also watching the Reserve Bank of India's (RBI) decision to close the concessional FCN (B) forex-swap facility earlier than expected, which added to concerns over dollar inflows, according to Business-Today. The dollar index, which tracks the greenback against a basket of six currencies, was at 99.63, down 0.01%.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said: "The rupee opened lower as oil prices rose with the US and Iran remaining at odds over the Strait of Hormuz and there was no progress on a peace deal."
Bhansali added:
Rupee looks vulnerable to the rising oil prices which have remained close to $90 and have now risen above $91 per barrel. RBI was protecting near 95.61 on Monday and may be protecting 95.75 today but will allow the depreciation to continue in view of the rising oil prices and consistent demand from oil companies.
Equities and foreign fund flows
The weakness in the currency came alongside a subdued start for domestic equities. The Sensex was down 278.32 points at 77,450.64 in early trade, while the Nifty fell 57.65 points to 24,230.45, Business-Today reported. Foreign institutional investors remained sellers in the equity market, offloading shares worth Rs 2,535.10 crore on a net basis on Monday, according to exchange data cited by the report.
Key market indicators
| Indicator | Level | Change |
|---|---|---|
| USD/INR (Tuesday open) | 95.68 | -7 paise |
| USD/INR (Monday close) | 95.61 | -19 paise |
| Brent crude futures | $91.34 | +0.52% |
| Dollar index | 99.63 | -0.01% |
| Sensex | 77,450.64 | -278.32 pts |
| Nifty | 24,230.45 | -57.65 pts |
| FII net equity sales (Monday) | Rs 2,535.10 crore | — |
Implications for treasuries and trade finance
For Indian corporates with dollar-denominated import exposure, the rupee's decline raises the local-currency cost of settling crude purchases, Business-Today reported. Bhansali said the rupee could remain under pressure as crude prices have moved above $91 per barrel, and pointed to consistent dollar demand from oil companies. The RBI had been protecting the currency near 95.61 on Monday and may protect 95.75, but will allow depreciation to continue given rising oil prices, he said. For banks and corporate treasuries, the early closure of the concessional FCN (B) forex-swap facility removes a lower-cost swap window at a time when dollar demand is rising, the report noted. Meanwhile, net FII selling of Rs 2,535.10 crore in equities reduces an offsetting inflow of dollars into the market, according to exchange data cited by Business-Today.
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