Rupee breaches 84 as oil prices, foreign outflows put strain

MUMBAI: The rupee breached the 84/dollar mark for the first time Friday, settling at 84.06, down 12 paise from Thursday’s close of 83.94. Opening at 83.98, the currency touched an intraday record low of 84.07.
The breach of the 84 level is significant as RBI had defended this threshold for over two months. Friday’s intervention marked the central bank’s continuing efforts to prevent sharp volatility in the currency market.Some dealers feel RBI may have allowed the rupee to cross 84 for tactical reasons, anticipating more volatility in coming days should the Iran-Israel conflict escalate.
The continued strength of the dollar, driven by dimmed expectations of a 50-basis-point rate cut from the US Federal Reserve in Nov, has also contributed to the rupee’s weakness.
Rising crude prices, FPI outflows put pressure on Rupee
Allowing the rupee to weaken now will give RBI more room to intervene if there is volatility next week. While other Asian currencies have appreciated around 5% over the past two months, the rupee has remained largely flat, reflecting RBI’s active role in managing currency fluctuations. Support for the rupee is anticipated between 84.2 and 84.35, with resistance expected in the 83.7-83.8 range.
The rupee had strengthened to 83.5 barely two weeks ago, buoyed by gains in equity markets. Rising crude prices and foreign outflows from Indian equities have exerted downward pressure. Brent crude has surged from $69 per barrel in late Sept to $78.92 in Oct.
“There is a likelihood that the rupee will weaken further if the conflict between Israel and Iran escalates coupled with other geopolitical developments,” said Hariprasad MP, executive director, EbixCash World Money Ltd . “The weaker rupee will not have any adverse impact on leisure travellers as it coincides with the Durga Puja period, which typically sees a surge in travel. It is unlikely that this will affect travel demand, though some travellers may carry less forex.” The continued strength of the dollar, driven by dimmed expectations of a 50-basis-point rate cut from the US Federal Reserve in Nov, has also contributed to the rupee’s weakness. However, with RBI maintaining robust foreign exchange reserves, any significant depreciation is likely to be gradual and controlled, dealers said.