The Indian rupee reversed nearly
all of the previous session’s rally on Monday, pressured by
rising oil prices, fragile risk appetite and patchy corporate
flows.
A raft of measures aimed at supporting the currency battered
by the impact of the months-long Iran war had boosted the rupee
to its best day in two months on Friday.
However, rising crude and renewed expectations of a Federal
Reserve rate hike have offset their positive impact.
The rupee ended down 0.8% in its sharpest fall in
four weeks to settle at 95.7075 per dollar.
Still, analysts say the measures to attract dollars would
lead to $30 billion to $50 billion of money flowing in.
“The RBI has provided meaningful support to the rupee, but
external factors will remain crucial. Any escalation in
U.S.-Iran tensions, leading to a stronger dollar or higher oil
prices, could temporarily push the pair upwards,” said Amit
Pabari, managing director at FX advisory firm CR Forex.
Brent crude jumped over 4% after Israel launched fresh
strikes on Lebanon despite an existing truce, weakening hopes of
a broader regional de-escalation and delaying the possible
resumption of shipping through the Strait of Hormuz.
The crude spike brought external risks back into focus for
the rupee, given India’s heavy dependence on imports and the
currency’s sensitivity to swings in energy prices.
Higher oil prices typically widen India’s import bill,
pressure the current account, and increase demand for dollars
from oil companies.
Stronger-than-expected U.S. jobs data has reinforced
expectations that the Fed could raise interest rates before the
end of this year, which pushed Treasury yields higher.
Elevated U.S. yields tend to support the dollar and weigh on
emerging-market currencies by narrowing the relative appeal of
local assets.
While speculators stepped in to sell dollars earlier in the
day, corporate outflows weighed on the currency, traders said.