New Delhi: The rupee depreciated 9 paise to 94.55 against the US dollar in early trade on Thursday, pressured by the American currency’s strength in overseas markets, even as falling crude oil prices and gains in domestic equities helped limit losses.
At the interbank foreign exchange market, the domestic currency opened at 94.36 before weakening to 94.55 against the greenback, down 9 paise from its previous close.
On Wednesday, the rupee had strengthened for the second consecutive session, gaining 29 paise to settle at 94.46 against the US dollar.
Forex traders said improving global risk sentiment, sustained foreign portfolio inflows and a sharp correction in international crude oil prices provided support to the domestic currency.
The dollar index, which measures the greenback’s strength against a basket of six major currencies, was trading 0.34 percent lower at 101.22.
Brent crude, the global oil benchmark, declined 1.04 percent to USD 93.64 per barrel in futures trade, extending a steep correction triggered by expectations of easing geopolitical tensions in West Asia.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said financial markets were rapidly unwinding the geopolitical risk premium associated with the US-Israel conflict with Iran.
“Forward-looking markets are aggressively erasing the geopolitical risk premium built up from the US-Israel conflict with Iran, as a Democratic-controlled Congress is expected to severely constrain funding for military escalation and push for near-term diplomatic negotiations,” said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.
The sharp fall in oil prices followed the Democratic Party’s reported sweeping victory in the US midterm elections, which has fuelled expectations of renewed diplomatic efforts to resolve the conflict.
“Global crude benchmark Brent oil plunged over 8 percent overnight, breaking below the psychological USD 100 per barrel barrier to trade at USD 93.84 on Thursday morning.
“The massive sell-off-marking crude’s worst single-day decline since May—was triggered by the sweeping Democratic victory in the US midterm elections,” Bhansali added.
Lower crude prices are particularly beneficial for India, which depends heavily on imported oil, as they help reduce the country’s import bill and ease pressure on inflation and the current account deficit.
Domestic equity markets opened sharply higher, providing additional support to the rupee.
The 30-share BSE Sensex surged 1,403.71 points to 78,689.87 in early trade, while the NSE Nifty advanced 378.85 points to 24,340.40.
Foreign institutional investors remained net buyers on Wednesday, purchasing equities worth Rs 7,284.03 crore, according to exchange data.
Market participants are expected to closely monitor movements in the dollar, global crude oil prices and developments in West Asia for further cues on the rupee’s direction.
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