Rupee has lost 9.25 per cent against the US dollar since January 9. As the markets opened today rupee crashed to an all-time low of 69.09 against the dollar. The slide of the rupee is governed by various internal and international factors. Three prime reasons are: Crude Oil Prices For the larger part of the past four years, crude oil prices have remained favourable for rupee but other factors decided its rise and fall. As India depends heavily on imported oil for which it needs to convert rupees to dollars. The simple demand and supply principle weakens the rupee against the dollar. With crude oil prices hovering in the range of $80 for quite some time now -- up from its lowest rate of $29 in 2016, pressure on rupee is enormous. India imported over 43 lakh barrels of crude oil in 2017 and is likely to cross that mark this year. India is the third largest source of crude oil demand behind the US and China. Both these countries have economies multiple times bigger than India's. This is happening at a time when the internal twin disruptions caused by demonetisation and GST rollout in one stroke have not given the currency enough time to recover. Donald Trump's Trade Tactics US President Donald Trump is tightening the screw on the world economy. He won the US presidentship with the promise of inward-looking economic policy. This means he is targeting both India and China at every possible front. The recent trade tariff row with India and China is sending jitters across international traders who prefer to stock stable and stronger currency to secure their business interests. In the latest whimsical decision, the Trump administration has practically forced its allies to stop the import of oil from Iran, a major contributor to the global crude stock. The US also asked India to stop oil import from Iran. Even if India doesn't follow the cue, the Trump administration has virtually set the course for a further hike in oil prices - more demands on the less number of suppliers. Rupee tends to lose sheen with every increase in oil prices. US Federal Reserve Rate The US economy has been expanding for the ninth year in a row. This led the recent upward revision of federal reserve rate by 25 basis point, from 1.75 per cent to 2 per cent. Earlier this month, RBI Governor Urjit Patel had warned that if the US maintains its ongoing monetary withdrawal, it would translate into serious repercussions for the global economy. Hike in federal reserve rate created a relative shortage of dollar in the market pushing its demand further. With rupee caught in the ripples of oil and demo-GST shocks, the dollar has built more muscles. More rupee is now required to buy a dollar. ALSO READ | Rupee touches lifetime low against dollar ALSO WATCH | Image of the day: Trump mocks PM Modi over high import duties on Harley Davidson<doc-sep>The rupee had touched its previous record low of 68.8650 per dollar on November 24, 2016. Highlights Rupee fell 49 paise in the morning trade against US dollar US clampdown on imports from Iran weighed on oil prices Rising crude oil prices weighed heavily against rupee's value against USD The Indian rupee recovered marginally from its lifetime low to trade at 68.95 per dollar in late morning deals on Thursday amid heavy month-end demand for the American currency from importers and banks. In early trade today, the rupee fell to an all-time low tracking Asian peers, with weakening macro-economic fundamentals on the domestic front also weighing on the currency. The dollar's sharp gain overnight coupled with falls in Asian peers caused the drop in early trade, traders said, adding they were hopeful the central bank would step in to prevent further losses. The rupee's last record low was 68.8650 per dollar, hit on November 24, 2016. The dollar was, however, steady against its peers on Thursday, having failed to extend overnight gains amid conflicting signals from Washington on a proposal to restrict Chinese investment as the bitter US-China trade row kept financial markets on edge. On the domestic front, a widening current account deficit (CAD) due to higher global crude oil prices and steady capital outflows have weighed on the rupee this year. "Weakening at this pace shatters confidence. Markets expect RBI (Reserve bank of India) to manage the currency more effectively. The pressure on INR is high, thus in the absence of major action from regulators, 70 levels can be seen," the head of currency and debt trading at a foreign bank said. "The RBI has been effectively managing (the rupee) over the years, and they do have ample firepower to manage sharp falls." Foreign exchange reserves stood at $410.07 billion as of June 15, latest RBI data showed. Oil prices have been rallying for much of 2018 on tightening market conditions due to record demand and voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC). Economy's March quarter CAD widened to $13.0 billion, or 1.9 per cent of GDP, from $2.6 billion, or 0.4 per cent of GDP, from a year earlier. Despite the rise in CAD, it remains modest relative to GDP and is largely financed by equity inflows, including foreign direct investment (FDI), Moody's said in a note on Thursday, adding that the large foreign exchange reserves provided a good buffer. "India's low dependence on foreign-currency borrowing to fund its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability," Moody's added. © Thomson Reuters 2018<doc-sep>The RBI will have to intervene and arrest the slide of the rupee. A crashing unit can erode investor confidence further The Indian rupee has tested a new all-time low; the crash, past 69 a piece to the US dollar (69.10), should ring alarm bells in New Delhi. Let’s look at the reasons for the freefall. The main villain in the story is crude oil - spiking international oil prices caused the rupee’s depreciation and everything else is linked to this. The rising trend of Brent crude, beginning last year, has widened the current and fiscal accounts putting immense pressure on the rupee. CAD, which is the difference between the inflow and outflow of foreign exchange, jumped to $48.7 billion, or 1.9 percent of GDP, in the 2017-18 fiscal. That was higher than the $14.4 billion, or 0.6 percent of GDP, logged in the 2016-17 fiscal. Secondly, worsening fundamentals prompted foreign investors to be choosy on emerging market investments and they have been on a heavy selling spree this year in the foreign exchange market. When foreign investors pull out, the local unit comes under pressure. When they pour funds, the rupee strengthens. So far, Foreign Institutional Investors (FIIs) have pulled out Rs 469 billion from the Indian market (both equity and debt) causing the local unit to fall 8.24 percent this year from 63.84 to 69.10. Thirdly, rising Federal Reserve interest rates have compelled investors to pull out of emerging markets and divert funds to the US. Two more increases are likely this year. Brent crude was trading at nearly $78 a barrel in Asian trade on Thursday and until that trend reverses, there isn’t much hope for India, which relies on imports to meet about 80 percent of its domestic oil demand. The Narendra Modi-led government enjoyed cheaper global crude prices during the initial period of its rule, but oil prices started climbing later. In the recent past, prices spiked after the US asked its allies to end all imports of Iranian oil by November. Concerns over supply disruptions in Libya and Canada have also pushed prices higher. A falling rupee is bad news for importers who will have to shell out more on their receivables; but exporters will earn more. When the dollar supply dries up in the domestic market, a rupee sell-off begins from banks and oil importers to mop up sufficient dollars to meet their payment demand. This puts further pressure on the rupee. The immediate challenge before the Reserve Bank of India (RBI) is to shore up the falling rupee. The central bank has been intervening in the currency market from time to time through state-run banks but the current fall seems to warrant urgent measures. The foreign exchange market is predominantly driven by speculators. Prior to Thursday's fall, the rupee tested an all-time intraday low on 24 November 2016 when it tested 68. 87 per dollar. With the rupee testing new lows and the oil scare persisting, RBI Governor Urjit Patel has a tough task with respect to salvaging the falling currency, a task similar to what his predecessor Raghuram Rajan faced in August, 2013, when the rupee had tested a low of 68.85 against the US dollar. Back then, the central bank, under Rajan, announced a series of measures to stabilise the free falling currency, including imposing temporary capital outflow curbs and incentivising inward remittances such as the FCNR deposit schemes, under which banks mobilised about $20 billion worth of deposits. Those measures, coupled with the Rajab factor, worked well and helped calm nerves in the financial markets. This time, that task is with Patel and it is even more difficult to calm the markets now as the major trigger is the spike in the international crude oil prices, over which India has very little control. Patel will have to pull some tricks to arrest the slide of the rupee as a crashing unit can erode investor confidence further, with a spillover impact on the local equity and the bond markets. (Data from Kishor Kadam)<doc-sep>Sensex plunges 273 points while the NSE Nifty finishes below 10,700-mark. (Express Photo by Praveen Khanna) Sensex plunges 273 points while the NSE Nifty finishes below 10,700-mark. (Express Photo by Praveen Khanna) Hit by higher oil prices and trade war concerns that could spark another bout of capital outflows, the rupee on Wednesday slipped to 68.61, its weakest level in 19 months, against the dollar. The Sensex plunged by 273 points, or 0.77 per cent, settling at 35,217.11 amid weak global cues and the weakness in the currency. The 50-share index Nifty closed the day 98 points, or 0.91 per cent, down at 10,671. Oil prices rose on Wednesday on supply disruption in Canada, falling US crude stocks, uncertainty over Libyan exports and US demands that importers stop buying Iranian crude from November. Brent crude was up 25c a barrel at $76.56 by 10 am GMT. US light crude was 65c higher at $71.18. The rupee declined by 37 paise to 68.61 during the day from its previous close of 68.25. The rupee fell to a fresh intra-day low of 68.68 against the dollar in afternoon deals, prompting the Reserve Bank of India to intervene to stem the fall. “Rising crude prices are a drag on the Indian economy and fuel inflation concerns, as it is a major driver of our current account deficit. India imports around 80 per cent of its crude oil requirements and higher crude oil prices risks widening India’s current account deficit, adding inflation risks,” said an analyst with Religare Broking. Oil prices rose sharply as supply disruption in Libya and Canada tightened the market and after US officials told importers to stop buying Iranian crude from November. “Alongside, slide in domestic equities is being mirrored by the fall in domestic currency. Persistent weakness in the Chinese yuan has also dragged emerging market currencies lower including the Indian rupee, amid escalating trade tensions. There is “risk off” environment as investors are waiting to see the next development in the trade tussle involving the US and China. The domestic currency is leading the decline in the region and is not far from its record-low of 68.93,” Religare said. The sentiments are expected to remain jittery ahead of the (US government) report on Chinese investments due Friday, and the July 6 deadline for tariff imposition. The currency hit an all-time closing low of 68.825 on August 28, 2013. Jayant Manglik, president, Religare Broking, said, “Bears took a grip over the Indian markets and pushed the equity benchmark indices into the red. The Nifty index opened marginally in the green, but the gain soon fizzled out as the index slipped from an intra-day high of 10,786 and witnessed selling pressure throughout the session, and finally closed down.”<doc-sep>
Representative Image The embattled rupee today plunged by 37 paise or 0.54 per cent to settle at a 19-month low of 68.61 against the US dollar as growing crude oil prices fanned fears of a widening current account deficit and a spike in inflation. This is the lowest closing for home currency since November 24, 2016, when it had settled at 68.73. The Indian unit caved in to a fresh intra-day low of 68.68 against the dollar in afternoon deals, prompting the central bank to intervene. Investors grew more nervous that higher crude oil prices will worsen India's current account deficit and fuel inflation. After a short break, crude oil prices rebounded after the US asked its allies to end all imports of Iranian oil by a November deadline. Concerns over supply disruptions in Libya and Canada also flared up the prices. Brent crude futures was trading up 0.5 per cent at USD 76.78 a barrel in early Asian trade. The currency market was nervous after RBI painted a gloomy picture of the banking sector in its bi-annual financial stability report. Higher inflation, concerns over fiscal deficit and hawkish stance from the RBI have driven up bond yields, hurting bond prices. The 10-year benchmark bond yield shot-up to 7.87 per cent from 7.83 per cent. Currency traders were also worried about the future of global trade against the grim backdrop of an escalating trade rhetoric between the US and China. A massive selloff in domestic equities further added pressure fearing heavy capital outflows. The rupee, which strengthened 5.96 per cent against the US dollar last year, has been on a general downtrend since the start of 2018. It has lost nearly 7 per cent this year so far. It had touched a historic low of 68.86 in November 24, 2016 and a lifetime closing low of 68.80 in August 28, 2013. The RBI's intervention cooled the market to some extent as exporters came forward to sell dollars, a forex dealer said. Sentiment remains weak and new support levels are becoming difficult to find, he added. The RBI, meanwhile, fixed the reference rate for the dollar at 68.5246 and for the euro at 79.8654. The dollar index, which measures the greenback's value against basket of six major currencies, was up at 94.69. In the cross currency trade, the rupee continued to slide against the euro and settled at 79.70 as compared to 79.66 and also slumped against the Japanese yen to close at 62.41 per 100 yens from 62.23 yesterday. The local currency also fell back against the pound sterling to finish at 90.45 per pound from 90.38 earlier. In forward market today, premium for dollar declined furher owing to sustained receiving from exporters. The benchmark six-month forward premium payable in October edged lower to 97.50-99.50 paise from 98-100 paise and the far-forward April 2019 contract softened to 244-246 paise from 244.75-246.75 paise previously.