The Indian rupee weakened against the dollar as oil prices increased, which will be more of a burden on the domestic currency now. On the other hand, a dollar was high on Friday and dollar demand for oil prices soared. With that in mind, on Tuesday the rupee fell around 95.39 against the dollar and the last day's close of 95.30 was around 95.30, which is nearly 9 paise lower than the previous day, showing the difficulty of the currency.
The crude oil prices had been the main factor that had a bearing on the rupee with a massive rise in crude oil prices. Brent crude, a barometer for global oil prices, was at record high levels in recent weeks. This surge was mainly due to increasing uncertainty surrounding the US-Iran negotiations and the mounting geopolitical tension around the world and its effect on the world economy (United States and Iran talks are not good for India and its energy demand) and the country is heavily dependent on imported oil to produce energy.
If crude oil prices increase, India's import bill will increase drastically. This can lead to a bigger trade deficit and a higher demand for U.S. dollars and thus bring down the rupee even more. And the currency movement is also influenced by a lot of things like the dollar's strength on world markets and foreign investment flows, interest rate outlook and overall market events. So traders and analysts will be watching crude oil price and global economic conditions and any geopolitical aspects to know the future of the rupee.
The RBI is also closely associated with the currency market. Market participants are keenly watching for any intervention from the RBI to put a hold on the excessive volatility in the rupee exchange rate. However, positive inflows from foreign portfolio investors may provide some support for the domestic currency, and to some extent might offset the impact of oil prices rising.
The recent fall in the rupee is a surprise considering that it had already fallen on Monday, closing at ₹95.30. With crude oil prices at high levels in the market, and the world markets on edge on a variety of geopolitical concerns, traders will continue to keep a wary watch. The currency will be somewhat volatile in the near term, with oil prices fluctuating in the market, U.S. dollar strengthening and the global economic data coming out as well. Thus the various players in the currency market must watch and keep an eye on those variables.
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