Rupee likely to outperform others in the region as oil prices fall

The Indian rupee has strengthened in the past few days following a fall in oil prices, even as weak Chinese data strokes fear of a global slowdown.

The rupee could end up being the best-performing currency in the region, say currency dealers as oil prices fall and tax collection bolsters the economy. In the past five trading sessions, the rupee has appreciated 1.30 per cent, the sharpest among major currencies in the region.

It was, in fact, one of the three currencies that rose against the dollar on Thursday, appreciating 0.30 per cent from its previous close of 69.56 a dollar. 

The rupee closed at 69.37 a dollar, from the 70.3-level last week. The data released showed that collections under the Goods and Services Tax (GST) in April jumped 10 per cent to an all-time high of Rs 1.13 trillion in April. 

A fall in oil prices has given enough cheer to the dealers. 

According to Paresh Nayar, head of forex and fixed income at FirstRand Bank, rupee's appreciation follows a fall in oil prices, and a surfeit of dollars in the market because of holidays.

Currency consultant IFA Global said the rupee could outperform on lower crude prices as the overall risk sentiment remains downbeat after a worse-than-expected Chinese purchasing manager index data.

Despite sanctions put by the United States (US) on Iran oil, the global crude prices fell. As domestic crude supplies in the US rose, Brent crude recorded a drop to about $72 a barrel, from $75 a few days back. The dollar index, which measures the greenback's strength against major global currencies, dropped from 98.20 on April 25 to 97.60 on Thursday.

However, the dollar remained relatively stable against emerging markets currencies. Currency dealers said the US Federal Reserve's decision to keep policy rates unchanged, with indications that the stance would also remain unchanged for the current year, is good for the emerging markets. 

These markets could witness increased portfolio flow, which should be able to boost the local reserves, as well as currencies. 

However, the election outcome by the end of May is crucial for the currency. 

If there is no surprise, the local currency should be able to rally, when the US and China are coming closer to a trade agreement, say currency dealers.