The rupee on Thursday vaulted by 77 paise to end at 70.69 against the US dollar as the softening crude oil prices and rising foreign capital inflows boosted the recently battered Indian currency. With this, for the rupee, which has gained nearly five per cent from a low of 74.4 on October 9 this year, this is the seventh straight session of gains for the domestic unit amid the weakening of the US dollar against some currencies overseas.
The Indian currency had depreciated by 14.1 per cent from the start of the financial year FY19 and touched a low of 74.4 against the dollar on October 9, 2018.
The major factor that strengthened the rupee in the last two weeks was the fall in crude oil prices. This moderation in crude oil prices is primarily on account of the waiver granted by US on the Iran sanctions to 8 countries, including India. Other factors like oversupply of crude oil by the OPEC countries (raising its production in September’18) and increasing US shale production have also led to crude oil prices declining, said an analyst.
Negative outlook on oil helping rupee gain ground
The rise in crude oil price earlier this year pulled down the rupee by 14.1 per cent since April 2018. Now with oil falling, the rupee is gaining ground. This moderation in crude oil prices is primarily on account of the waiver granted by US on the Iran sanctions. The outlook for oil has turned negative amid rising production and concerns over global economic growth.
After hitting a four-year high of almost $87 a barrel, the Asian benchmark Brent oil has fallen sharply, retreating about 28 per cent to $61.71 a barrel this week. The outlook for oil has turned negative amid rising production and concerns over global economic growth. Indian futures prices also shed by more than 30 per cent since the first week of October. Worries over supply crunch on the prospect of tough sanctions on Iran and higher demand from top oil consumers had kept oil prices at multi-year highs earlier.
Dealers said the rupee has gained 220 paise in the last seven trading sessions as exporters and banks sold dollars and supported the rupee. Globally, Brent crude, the international oil benchmark, was trading 0.39 per cent lower at $ 62.85 per barrel on Thursday amid concerns about a global glut. US commercial crude oil inventories climbed by 4.9 million barrels to 446.91 million barrels last week, the U.S. Energy Information Administration (EIA) said on Wednesday, its highest level since December.
According to Care Ratings, the depreciation of the rupee earlier in the day can be attributed to a number of factors like the US Fed monetary policy decision to hike rates thrice this calendar year, geo-political trade tensions between US and China, US sanctions on Iran and uncertainty about Indian purchasing oil from the latter, elevated crude oil prices having spiked from $67.7/barrel to an average rate of $79.2/barrel in September 2018 and $80.7/barrel in October 2018 which affected the current account deficit and balance of payment, FPI outflows from the country and declining forex reserves.
However, following the six-month waiver received by India from the US government on the Iran sanctions (supposed to set in from November 4, 2018), there has been a reversal in the depreciation of the rupee. On November 22, the rupee closed at an 11-weeks high at 70.69, appreciating by over 3 per cent in the month of November. The Indian rupee has been the second strongest currency behind only Indonesian rupiah which has witnessed appreciation of 3.1 per cent.
Countries like China (-0.1 per cent), South Korea (-0.6 percent), Taiwan (-0.5 per cent), which were also granted waiver by US on Iran sanctions have seen their currencies depreciated post November4, 2018. On the other hand, the Japanese yen (0.1 per cent) and Turkish lira (0.7 per cent) have appreciated.
According to analysts, foreign portfolio investment added to the rupee appreciation. The foreign portfolio flows which had witnessed a sustained outflow to the tune of $7.9 billion during September-October 2018 have seen a reversal in the month of November. FPIs have been net investors of $1.6 billion in November 2018.