Rupee record low pressure grew on Friday as the Indian currency stayed close to its all-time trough despite near-daily RBI support. Traders expect the rupee to open at 96.40 to 96.44 per U.S. dollar, after it closed at 96.3450 on Thursday. The currency has now fallen for four straight sessions. Moreover, it sits less than 0.5% from the record low of 96.96 reached in May.
The Reserve Bank of India has stepped into both spot and forward markets almost every day. However, traders said the central bank has acted in a measured way. They said the RBI appears to be slowing the pace of losses, not defending a firm level. As a result, the rupee remains exposed to more pressure from rising crude oil prices and weaker risk appetite.
Rupee Record Low Nears on Oil Pressure
The source said higher crude prices and risk aversion have driven much of the recent weakness. That has outweighed support from portfolio flows. Reuters reported that the rupee looked set to extend its losing streak at Friday’s open as market sentiment worsened.
The source also said the move does not point to broad capital flight. Instead, it linked the pressure more to oil-related importer demand and wider risk aversion. A currency trader at a bank said the pattern looked more like routine importer and exporter demand, although a few larger outflows also weighed on the rupee.
Portfolio Flows Improve but Rupee Stays Weak
Foreign investors have bought about $1.5 billion of Indian equities so far this month. That marked a sharp turn from outflows of more than $5 billion in June. Meanwhile, foreign debt inflows have stayed positive, with about $500 million invested this month after more than $3 billion flowed into Indian debt in June.
Even so, the rupee has kept falling. Traders said that gap between better flows and a weaker currency shows other forces are driving the move. The same bank trader said the RBI has not shown a clear wish to defend any one level. Therefore, the market sees the daily action as an effort to manage volatility and the speed of depreciation.
With the rupee close to its record low, elevated oil prices tied to the Middle East conflict may test whether the RBI keeps its measured approach.
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Source: InvestingLive
