Rupee gains on corporate investments, cheaper global oil prices

Currency could be poised to gain after recent sharp underperformance, say analysts

The rupee strengthened sharply on Thursday due to corporate investments, a decline in global crude oil prices and as some traders bet on the currency to reverse a recent spell of underperformance, dealers said.
 
The rupee settled at 82.55 per US dollar on Thursday as against 82.81 at previous close. The rupee depreciated around 10 per cent against the greenback in 2022.
 
Dealers said that while the US Federal Reserve’s decision to opt for a lower quantum of rate increase in December had led to hope of the American central bank slowing down on monetary tightening, the minutes of the Fed’s latest meeting had not provided firm cues.
 
Higher US interest rates lead to a global flow of funds towards the country, causing the dollar to strengthen and consequently dragging down emerging market currencies like the rupee.
 
“The Indian rupee gained for a second day; supported by stronger regional peers. The December FOMC minutes barely affected the FX market,” said Dilip Parmar, research analyst at HDFC Securities.
 
“Now, the focus will be on the December ADP jobs data. A firm ADP number could also deliver a little support to US yields and the dollar. The rupee continues in a narrow range of 82.50 to 83,” he said.
 

With the fall in global crude oil prices helping ease fears about India’s current account deficit, the rupee on Thursday strengthened past 82.65/$1 as well as 82.55/$1—both key technical levels, said a dealer with a state-owned bank.
 
Over the last two days, Brent crude prices fell over 9 per cent, Reuters reported. Given that India is the world’s third largest importer of the commodity, a decline in crude prices provides comfort on the domestic trade deficit.
 
With seasonal demand for dollars by oil importers having likely subsided after December, the rupee could fare better in coming weeks, analysts said.
 
“There was a corporate inflow today, but the Indian rupee has been underperforming its peers for a long time now. Especially from mid-November,” said Anindya Banerjee, VP - Currency Derivatives & Interest Rate Derivatives at Kotak Securities.
 
“If you would line up the top 25 or 26 currencies in the world, except for some currencies like the Russian rouble or the Israeli currency, the Indian rupee has been one of the worst performers. A lot of the underperformance was being linked with the huge demand from the oil marketing companies. If that demand has abated, then we could see scope for the rupee to catch up and head towards 81/$1 or even 80/$1 levels,” he said.
 
The rupee depreciated 1.6 per cent against the greenback in December, despite the US dollar index having dropped close to 2.5 per cent during the period.