Rupee slips to 95.22 against dollar in early trade

The rupee stayed volatile and depreciated 7 paise to 95.22 against the US dollar in early trade on Tuesday, 27 October, weighed down by elevated crude oil prices, geopolitical uncertainty and a stronger dollar ahead of the United States Federal Reserve policy decision. The move extended a weak run for the Indian currency into a fourth session of pressure.

At the interbank foreign exchange market, the rupee opened at 95.17 against the dollar. It pared some losses to touch 95.11, helped, forex traders said, by some recovery on likely intervention by the Reserve Bank of India. The recovery did not hold, and the currency soon lost ground to trade at 95.22, lower by 7 paise from its previous close.

On Monday, the currency had depreciated for the third consecutive session and settled 22 paise lower at 95.15 against the US dollar. In the last three sessions before Tuesday, it had lost 77 paise against the dollar, a run that left traders watching each morning open for signs of whether the fall would slow or gather pace.

Crude oil adds to rupee pressure

Crude oil stayed near a six-month high, which matters for India because the country imports a large share of the oil it uses. Higher crude prices raise the dollar demand from importers and widen the import bill, and that demand tends to weigh on the rupee. Brent crude, the global oil benchmark, traded lower by 0.91 per cent but stayed near its six-month high at 114.76 dollars per barrel in futures trade on Tuesday morning.

Analysts linked the higher crude level to Houthi-led attacks on Saudi Arabia's oil infrastructure, which raised fears of disruption to global energy supplies. With oil near 115 dollars a barrel, traders saw little room for the rupee to recover on its own, even though the Reserve Bank of India is widely seen as active in the market when moves turn sharp.

The dollar index, which measures the greenback against six major currencies, traded higher by 0.06 per cent at 101.86. A firmer dollar makes it harder for emerging market currencies to gain, because investors hold dollars ahead of central bank decisions and seek the safety of dollar assets when global risks rise.

Rupee pressure from foreign investors ahead of Fed decision

Foreign investors added to the pressure on the rupee. Foreign institutional investors offloaded equities worth 1,462.49 crore rupees on a net basis on Monday, according to exchange data. Those sales create dollar demand when the proceeds leave India, and they came at a time when domestic equity sentiment was already subdued.

The United States Federal Reserve policy decision was the main event on the calendar for currency traders. The Fed was due to decide on interest rates later in the week, and its statement was expected to shape expectations for the path of rates. A signal that rates would stay higher for longer would support the dollar, while a softer signal could ease pressure on currencies such as the rupee.

On the domestic equity front, the Sensex dropped 126.16 points, or 0.17 per cent, to 73,480.59 in early trade on Tuesday, while the Nifty fell 47.30 points, or 0.21 per cent, to 22,706.30. The soft start in shares matched the tone in the currency market, where traders said the currency showed some recovery on likely central bank support but failed to withstand pressure from foreign fund outflows.

For importers, a weaker currency raises the cost of dollar payments, while exporters receive more local currency for each dollar earned.

Rupee ends early trade at 95.22

The balance between those effects, and the pace of the move, is what the Reserve Bank of India watches. A steady, gradual move is easier for businesses to plan around than a sharp fall in a few sessions, which is why the 77 paise slide over three sessions drew attention in dealing rooms.

The early trade on Tuesday left the currency at 95.22 against the US dollar, after an open at 95.17 and a brief recovery to 95.11, with crude oil near its six-month high and the Fed decision still ahead.