Rupee Takes A Breather As Dollar Pauses, But Oil Surge Weighs

The rupee was almost flat early on Wednesday as the appeal for the Indian currency on the retreat in the dollar was offset by a surge in crude oil price above $100 per barrel, and as Asian currencies were mixed ahead of key commentary from global policymakers at the Jackson Hole Symposium.

PTI reported that the rupee fell 2 paise to 79.85 against the US dollar in early trade.

At the interbank foreign exchange, the rupee opened at 79.84 against the dollar, then fell to 79.87, registering a decline of 4 paise over the last close, according to PTI.

On Tuesday, the rupee moved up 1 paisa to settle at 79.83 against the dollar.

Bloomberg quoted the rupee at 79.8625 per dollar, compared to its previous close of 79.8650. 

It will likely be another session where the rupee "will lack direction", a trader with a Mumbai-based bank, told Reuters.

On worries that the rupee may continue its slide of about 7.5 per cent so far in 2022, importers are boosting their hedges.

That is not being helped by crude prices rising back above $100 per barrel after Saudi Arabia suggested that OPEC+ supply cutbacks be used to support prices.

Brent oil futures increased by about 4 per cent on Tuesday and while it was a touch down for the day on Wednesday, it still held above $100 per barrel.

That is a worry for Asia's third-largest economy, as the country relies on imported oil for more than 80 per cent of its needs, which suggest pressure on the rupee as demand for dollars increase.

But the damage to the currency may be limited as the dollar index briefly fell to 108.06 on Tuesday as a result of data showing subpar US private sector activity.

Indeed, for the month of August, the S&P Global flash composite purchasing managers index (PMI) fell to its lowest level since May 2020.

That data increased worries about the US economic outlook and whether concerns about a downturn may cause the Federal Reserve to pause in raising interest rates.

However, according to the CME FedWatch Tool, there is a nearly 55 per cent likelihood that the US central bank will increase rates by 75 basis points next month.

On Wednesday, Asian currencies and stocks traded in a range, and Indian equity benchmarks had a slightly negative beginning.

Trading professionals will examine daily equities flow data to determine whether a recent decline in risk appetite affected flows.

Foreign Institutional Investors (FIIs) were net buyers in the Indian capital market on Tuesday as they purchased shares worth Rs 563.00 crore, according to the latest exchange data.

The dollar is supported by hawkish comments by Federal policymakers who have said the biggest fear is the US central bank misreads the extent and persistence of price pressures and will need to deliver even more aggressive rate hikes to control inflation, Sriram Iyer, Senior Research Analyst at Reliance Securities, told PTI.

Mr Iyer added that most Asian and emerging market peers remained weak on Wednesday morning and could weigh on sentiments.