Rupee weakens on safe-haven demand; fall in crude prices caps losses

The rupee depreciated on Monday as a tense West Asia triggered demand for safe haven for the US dollar. The local currency fell up to 86.86 per dollar in the early trade, however, the fall in crude oil prices later in the day capped losses.

 

The Indian currency settled at 86.75 per dollar, against the previous close of 86.59 per dollar.

 

“We opened with a gap as expected tracking crude and dollar index,” said a dealer at a state-owned bank. “The crude came down later which led to some recovery,” he added.

 

Brent crude oil prices rose to $81.40 per barrel earlier in the day, against $76 per barrel on Friday. However, it fell to $77.4 per barrel by the end of the trading hours. 

 

On the other hand, the dollar index rose by 0.4 per cent to 99.4. It measures the strength of the greenback against a basket of six major currencies.

 

Market participants said that crude oil prices remain a significant idiosyncratic risk for the rupee. A further spike in crude oil prices, driven by escalating geopolitical tensions in West Asia, could continue to put pressure on the local currency.

 

“The spike seems temporary because of the conflict, but if the rise in crude prices continues, the rupee will see some more pressure, we might see 87 per dollar soon if the situation doesn’t improve,” said a market participant.