Rupee weakens after 9-day rise on month-end oil importers' dollar demand

After rising for nine straight sessions, the rupee weakened against the dollar on Tuesday, due to dollar demand from oil importers. The Indian unit settled 14 paisa lower at 85.78/$, against the previous close of 85.64/$.

 

The local currency depreciated up to 85.83 per dollar during the day, however, foreign inflows supported the domestic unit, said dealers.

 

Market participants speculated that the Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar buys which further weighed on the rupee.

 

“There was importer demand for dollars. Emerging currencies were also down,” said a dealer at a state-owned bank.

 

 

“The RBI could have also bought dollars for forward contracts,” he added.

 

On Monday, the rupee strengthened by 35 paisa, effectively erasing all losses for the current calendar year. The local currency has performed better than its Asian peers, under-pricing India’s vulnerability to reciprocal US tariffs, expected to be introduced on April 2.

 

“Given complications around sector/commodity-level tariffs, we believe a broad country-level tariff by the US is the most likely scenario,” said Madhavi Arora, lead economist, Emkay Global.

 

“We estimate India would potentially lose $6 billion (0.16 per cent of GDP) in exports to the US at 10 per cent broad tariffs, with this rising to $31 billion at 25 per cent tariffs,” she said.

 

The dollar index was largely steady at 104.24. It measures the strength of the greenback against a basket of six major currencies.

 

“The rupee was cushioned because of inflows, given the month end we will see some dollar buying this week, but 86 per dollar will hold, and 85.50 on the lower end,” said a dealer at another state-owned bank.

 

Persistent dollar sales from foreign banks and foreign inflows in domestic equities and debt segments led to the rupee’s appreciation by 2.04 per cent in March. The Indian unit has depreciated by 2.75 per cent in the current financial year, whereas, in the current calendar year, it has witnessed 0.18 per cent depreciation.

 

Traders now eye US consumer confidence data, US GDP, PCE prices data and remarks from Federal Reserve officials for further cues on movement of dollar index.