Rupee to stay under pressure; high oil prices spur importer hedging, dampen flows
The Indian rupee is expected to remain under pressure on Monday, weighed down by importer hedging demand spurred by stubbornly high oil prices, which are impacting other flows.
The rupee is expected to open in the 94.26-94.30 range, traders said, after settling at 94.2475 on Friday.
The currency tumbled 1.42% last week, marking its worst weekly performance in three-and-a-half years.
The slide was driven by a combination of factors, including a sharp rise in oil prices amid no sign of a resolution to disruptions around the Strait of Hormuz, and the central bank's partial rollback of measures that had been supporting the rupee.
These factors are likely to continue weighing on the currency this week, traders said, with oil prices playing the bigger role, a trend that has persisted for several weeks.
Brent crude climbed to just shy of $108 a barrel on Monday, the highest in three weeks, extending last week's 16.5% rally.
Peace talks between the U.S. and Iran stalled, while shipments through the Strait of Hormuz remained limited, keeping oil supplies tight and prices on the rise.
At these oil prices, there's little relief for the rupee, a currency trader at a private-sector bank said.
High oil prices push importers into hedging, capital inflows remain weak, and exporters don’t see much reason to step up dollar selling, he added.
Although foreign investors have moderated their selling of Indian equities in recent days, outflows have yet to reverse. The lack of portfolio inflows, along with the prospect of higher oil import bills, is adding to the rupee's woes.
Foreign investor outflows from Indian equities have slowed to just under $5 billion so far this month from over $12.5 billion in March.
Traders note that, despite the slowdown, flows remain negative and continue to pressure the rupee.
