The Indian rupee weakened to its lowest level in more than a month on Monday as surging crude oil prices threatened to push up domestic inflation pressures and aggravate the country’s currency account deficit.
Brent crude rose above $113 per barrel to near a nine-month high as Sunni insurgents advanced in Iraq, intensifying concerns over a potential disruption in oil exports from the second-largest OPEC producer.
India imports nearly two-thirds of its oil needs, leaving its currency especially vulnerable to price swings.
The rupee fell to 60.0450 to a dollar in early trade, a level last seen on May 12, as demand for dollars from oil companies weighed.
Traders were also seen buying the greenback as they looked to square off their short dollar positions.
“As long as the Iraq crisis continues, this should be the trend for the time being. And, if RBI doesn’t intervene, and the Iraq crisis continues, it will definitely remain below 60 to the dollar,” said Ashtosh Raina, head of forex trading at HDFC Bank.
The central bank is expected to buy or sell dollars to prevent any excessive volatility in the currency. Some traders expect the central bank to sell dollars around 60.10 per dollar to check the rupee’s falls.
In recent months, the central bank has been aggressively buying dollars to prevent sharp gains in the rupee from hurting export growth while also building up its foreign exchange reserves.
By 0516 GMT, the partially convertible rupee was at 59.9250/9350 per dollar versus its previous close of 59.76/77 on Friday.
Equities also fell on Monday, hitting a 1-1/2 week low as rising oil prices led to fears of oil exports from Iraq being hit.
Traders will now focus on whether the dollar can gain more should the U.S. Federal Reserve provide new hints on the timing of interest rate hikes when it concludes its two-day policy meeting on Wednesday.
For the near term, traders expect the rupee to trade in 59.90/60.20 range.