Key Takeaways
- Indian rupee ends week little changed, despite oil price rise.
- Oil prices, reaching five-month highs, fuel currency depreciation.
- Investor risk aversion and technology stock selloff impact currency.
The Indian rupee ended the week little changed, despite a surge in oil prices that reached a five-month high. The currency weakened for a second consecutive session on Friday, closing at 94.9400 against the US dollar, down 0.1% from the previous day.
Oil prices, particularly the benchmark Brent crude, increased significantly, hitting $114 per barrel. This rise was attributed to attacks in Saudi Arabia by Yemen’s Houthis, which raised concerns about energy supply disruptions.
Investor sentiment shifted towards risk aversion, with a selloff in technology stocks and a rise in demand for safe-haven US Treasuries. This shift, coupled with easing expectations of further US rate hikes, provided brief relief to the rupee in the early session.
However, the impact of higher oil prices outweighed the positive move, leading to a depreciation of the rupee. Energy prices remain elevated, raising concerns about inflation and imported energy costs, which affect the nation’s current account calculations.
Currency traders noted some residual flows linked to the Jio Platforms initial public offering (IPO) and the unwinding of dollar-long positions triggered by the Reserve Bank of India’s latest measures. These factors had briefly lifted the currency to a six-week high of 94.30 per dollar on Thursday.
Apoorva Javadekar, chief economist at Shriram Research, commented, 'The RBI’s recent FX measures are short-term stabilizers, not necessarily unjustified, but insufficient to alter the medium-term bearish outlook on the rupee.'
Despite the brief relief, the rupee’s medium-term outlook remains bearish due to ongoing concerns about oil prices and inflation.
Traders and analysts continue to monitor the situation, with the rupee’s performance expected to be closely tied to global oil prices and investor sentiment.
The RBI’s recent FX measures are short-term stabilizers, not necessarily unjustified, but insufficient to alter the medium-term bearish outlook on the rupee.
Apoorva Javadekar, Chief Economist at Shriram Research
