Gains in the rupee from corporate investments and lower world oil prices

by Mapping Returns

According to dealers, the rupee gained significantly on Thursday as a result of corporate investments, a drop in the price of crude oil globally, and trader bets that the currency would recover from recent underperformance.

On Thursday, the rupee was settled at 82.55 versus the US dollar, down from 82.81 at the previous close. In 2022, the rupee lost around 10% of its value versus the US dollar.

Dealers claimed that while the US Federal Reserve’s choice to choose a smaller rate increase in December had given rise to hopes that the American central bank would slow down on monetary tightening, the minutes of the Fed’s most recent meeting had not given any clear clues.

The dollar strengthens as a result of higher US interest rates, which drags down emerging market currencies like the rupee by attracting foreign capital to the US.

“Stronger regional peers helped the Indian rupee advance for a second day. According to HDFC Securities research analyst Dilip Parmar, the December FOMC minutes hardly had an impact on the foreign exchange market.

“ADP’s December jobs statistics will now be the main topic of discussion. US yields and the dollar may receive some support from a strong ADP data. The rupee remains in a constrained band between 82.50 and 83, he said.

According to a dealer with a state-owned bank, the rupee on Thursday rose past both 82.65 to $1 and 82.55 to $1—both important technical levels—as worries over India’s current account deficit decreased as a result of the decline in global crude oil prices.
According to Reuters, the price of Brent crude dropped nearly 9% over the previous two days. A decrease in crude prices eases concerns about the domestic trade deficit because India is the third largest importer of the commodity in the world.

After December, oil importers’ seasonal demand for dollars is likely to have decreased, analysts predicted, which might improve the rupee’s performance in the upcoming weeks.

Despite today’s corporate inflow, the Indian rupee has long lagged behind its counterparts in value. Particularly beginning in mid-November,” said Anindya Banerjee, VP of Kotak Securities’ currency and interest rate derivatives division.

“The Indian rupee has been one of the worst performers among the top 25 or 26 currencies in the world, with the exception of some currencies like the Russian rouble or the Israeli dollar. The enormous demand from the oil marketing corporations was thought to be the cause of much of the underperformance. If that demand has subsided, then there may be room for the rupee to catch up and move toward levels of 81 to or perhaps 80 to the dollar, the economist added.

Despite the US dollar index falling close to 2.5% throughout the month, the rupee lost 1.6% of its value against the US dollar.

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