Rupee hits new low as crude surge pressures bonds and currency markets

The rupee touched a fresh low as crude oil prices crossed $100/bbl and global volatility rose, while bond yields eased later after the RBI's OMO purchase helped stabilise sentiment

The rupee fell to a fresh low of 92.36 per dollar on Monday tracking the rise in dollar index, selling in domestic equities and overnight surge in crude oil prices which topped $100/bbl, said dealers.

 

The local currency fell 0.63 per cent to settle at 92.33 per dollar, against the previous close of 91.75 per dollar, with further losses likely capped by dollar sales by the Reserve Bank of India, said dealers. The previous closing low was 92.15 a dollar.

 

The dollar index rose to 99.30, against the previous day’s 98.99. It measures the strength of the greenback against a basket of six major currencies.

 

 

“The rupee was under pressure because of rise in crude prices and dollar index,” said the treasury head at a private bank. “There was selling (dollar) by the RBI at 92.35 per dollar level,” he added.

 

Brent crude oil prices rose as much as $116 per barrel on Monday, before falling to $104.52 per barrel, against the previous day’s $93.04 per barrel.

 

“The Rupee remains vulnerable to the vagaries of the market as higher oil prices command more buying of the commodity,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP. “FPIs continued to be sellers on Indian equities and debt, while the RBI have been sellers of dollar in the last week and today,” he added.

 

The rupee has depreciated by 7.43 per cent and weakened by 2.66 per cent in the current financial year. 

 

Government bond yields rose sharply during early trading hours on Monday, amid a broad sell-off triggered by a surge in global crude oil prices, following escalating tensions in West Asia, dealers said. The spike in oil prices, coupled with a rise in US Treasury yields and depreciation in the rupee, exerted upward pressure on domestic yields during the session, according to traders.

 

However, bond yields eased toward the end of the trade after the central bank conducted its scheduled open market operation (OMO) purchase, buying securities at prices higher than prevailing market levels, which helped stabilise sentiment. The yield on the benchmark 10-year government bond rose up to 6.77 per cent during the day before settling at 6.72 per cent, against the previous close of 6.69 per cent.

 

The central bank conducted an OMO purchase auction of government securities, accepting bids worth ₹50,000 crore across seven securities to infuse durable liquidity into the banking system.

 

“Today’s sell-off in bonds was largely a reaction to the sharp jump in crude oil prices after the escalation in West Asia. Higher oil prices pushed up US yields and put pressure on the rupee, which spilled over into the domestic bond market. The market did stabilise somewhat later in the session after the OMO auction, but volatility is likely to persist as long as crude prices remain elevated,” a dealer at a primary dealership said.

 

The RBI also conducted a switch auction of government securities, in which market participants offered multiple short-dated bonds in exchange for longer-tenor securities, with only a few tranches receiving bids. The central bank accepted offers worth ₹6,309 crore in face value across three source securities 7.33% GS 2026, 5.74% GS 2026, 8.15% GS 2026, and 8.24% GS 2027, against the notified amount of ₹20,000 crore. In return, the RBI issued longer-dated bonds including 6.57% GS 2033, 7.62% GS 2039, and 7.40% GS 2062. No offers were accepted for some tranches such as 6.97% GS 2026 and one 8.24% GS 2027 switch.

 

Dealers said the outlook for upcoming session remained uncertain and will largely depend on overnight movements in crude oil prices, US yields and the currency, with the five-year overnight indexed swap (OIS) rate currently hovering around 6.40 per cent, indicating expectations of tighter interest rate conditions.