Rupee drops 32 paise, may stay weak if crude spikes

Mumbai: A sharp rise in crude oil prices in the international market and profit booking in the domestic equity market pressurized the rupee that fell by 32 paise to close at a two week low at 69.67 against the US dollar on Monday. Traders expect the rupee to remain weak as long as crude prices remain high but said that the central bank would remain on guard to weed out any volatility as the elections are going on in the country.

Crude prices have spiked on reports that the US may not extend waivers from sanctions granted to eight countries from buying crude from Iran. The waivers are set to expire on May 2. India features in the list of eight countries and therefore this development could adversely impact the rupee. Iran is India's third largest supplier of crude. A sharp increase in crude oil prices threatens to fuel inflation and enlarge the country's already high import bill. Reacting to reports on Iran sanctions, global benchmark Brent crude climbed to a multi-month high of $73.81 per barrel, a 2.56 per cent rise.

"The Indian rupee is totally correlated to the crude prices and as long as the crude remains above $70, the rupee will hold weak. But these levels will not create any panic situation, however, the RBI will not want the currency to be volatile as this is election time. So it will be active to weed out any volatility," said a trader.

Abhishek Goenka, Founder and CEO of IFA Global said, "The rupee headed weak on Monday on account of sell off in the equities and also on account of US-Iran tensions on oil. The rupee may look to touch 70 levels but the RBI may be active in the market at higher levels. Sell on the rally remains to be the strategy. We expect the rupee to trade between 69.30 to 70.30 levels this month."

At the Interbank Foreign Exchange (forex), the rupee opened at 69.78 and touched a low of 69.88 against the dollar in early trade. But it pared early losses later and rose to an intra-day high of 69.50. The domestic currency, however, failed to sustain gains and finally settled at 69.67 per dollar, down 32 paise or 0.46 per cent over its previous closing. The rupee had previously closed at this level on April 8. However a weak US dollar against major global currencies capped losses of the domestic currency. The dollar index, which gauges the greenback's strength against a basket of six currencies, fell marginally by 0.06 per cent to 97.32.

The rupee on Thursday had gained 25 paise to 69.35 against the dollar after three sessions of losses. Foreign institutional investors, however, remained net buyers in the capital markets, putting in Rs 73.08 crore on Monday, provisional exchange data showed. Meanwhile, BSE Sensex settled 495.10 points, or 1.26 per cent, lower at 38,645.18; while the broader NSE Nifty tumbled 158.35 points, or 1.35 per cent, to close at 11,594.45.