Rupee plunges by 34 paise as crude oil prices surge past $110/barrel

The rupee slumped by 34 paise to close at 76.18 against the US dollar on Monday as rising crude oil prices and a lacklustre trend in domestic equities weighed on investor sentiment.

Expectations of aggressive rate hikes by the US Federal Reserve to control inflation also weighed on the local unit.

At the interbank foreign exchange market, the rupee opened lower at 76.08 against the American currency, later lost further ground to settle at 76.18, down 34 paise from the previous close.

On Thursday, the rupee spurted by 37 paise to close at 75.84 against the US dollar. The forex market was closed on Friday on account of Holi.

"The dollar is in rally mode as markets expect an even more hawkish Federal Reserve moving forward. Weakness in domestic equities and higher crude oil prices also weighed on the local unit," said Dilip Parmar, Research Analyst, HDFC Securities.

Crude oil prices jumped 3.47 per cent to USD 111.68 per barrel after reports that European countries would also consider an embargo on Russian oil on the lines of the US.

Saudi Arabia on Monday said it won't bear any responsibility for any shortage in oil supplies to global markets after attacks by Yemen's Iran-backed Houthi rebels affected the kingdom's production.

On Sunday, Yemen's rebels launched a series of attacks targeting the kingdom's oil and natural gas production.

Parmar further said that there are a handful of economic events this week and the focus will remain Ukraine-Russia peace talks, which will drive risk sentiments and crude oil prices. "Spot USD/INR is having strong support at 75.70 and resistance at 76.45," Parmar noted.

"The Indian Rupee depreciated against the US Dollar as oil prices rose this Monday as conflict in Ukraine worsened and heightened concerns about the risk of disruptions in energy supplies," Sriram Iyer, Senior Research Analyst at Reliance Securities.

Moreover, attacks on Saudi energy facilities by Yemen's Houthi rebels also heightened concerns over global oil supplies, Iyer said.

Weakness among most Asian currencies, ahead of a speech from Federal Reserve Chair Jerome Powell, kept investors on edge.

According to Jateen Trivedi, Senior Research Analyst at LKP Securities, a rise in Brent crude price towards USD 110 per barrel pushed the rupee below the 76 mark.

Meanwhile, the price of diesel sold to bulk users has been hiked by about Rs 25 per litre in line with a near 40 per cent rise in international oil prices.

The hike by the government in bulk buying of diesel oil can lead to high inflation, Trivedi said, adding that rupee can be seen in the range of 76.50-75.75 range.

The US Dollar has bounced back from recent declines after Federal Reserve officials said the central bank may need to be more aggressive to deal with inflation.

The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.03 per cent lower at 98.20.

On the domestic equity market front, the 30-share Sensex ended 571.44 points or 0.99 per cent lower at 57,292.49, while the broader NSE Nifty fell 169.45 points or 0.98 per cent to 17,117.60.

Foreign institutional investors remained net buyers in the capital market on Thursday, as they purchased shares worth Rs 2,800.14 crore, according to stock exchange data.