Rupee Closes at 95.34 Against US Dollar Despite Crude Oil Price Drop

India’s currency slipped slightly lower in the afternoon and ended at 95.34 against the US dollar and also fell in the afternoon as crude prices fell across the board. The currency’s dynamics are inextricably linked to external market forces and domestic economic conditions and the stability is one of the challenges for emerging market currencies.

Currency traders noted that although lower crude oil prices are generally good for the rupee as it lowers India’s import bill, other factors weighed on sentiment. Persistent foreign fund outflows and a stronger dollar index stifled the rupee’s ability to take advantage of the fall in oil prices. The global dollar strength due to expectations of tighter monetary policy in the US, too, weighed on the Indian currency.

On the commodities market, Brent crude slipped below $92 a barrel and West Texas Intermediate (WTI) around $88. This was also a relief to India, which imports around 85% of the country's crude oil supply. But the rupee's fall suggests Indian investors are cautious, and money flows and global risk sentiment are more important to them than how oil prices move.

Equity markets also played a role in currency-driven moves. Indian benchmarks were mixed with some sectors showing gains but profit-booking in others. Foreign portfolio investors continued to reduce their appetite for Indian stocks, and this effect is also helping the rupee to fall in the near term. For the long term, the inflows of funds into the domestic market will be crucial for the currency to stay stable.

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Rupee Rises to 94.39 Against US Dollar as Oil Prices Fall

The RBI kept a watchful eye on the market by keeping liquidity levels at an appropriate level. Market participants expect the central bank to intervene if volatility becomes very extreme, but so far the RBI has allowed the rupee to adjust in line with global conditions. In the final sessions of the week, traders predict that the rupee can trade in the 95.20-95.50 range as crude oil prices and dollar moves fluctuate.

The rupee's close of 95.34 against the dollar is a manifestation of currency dynamics. Although falling crude oil prices did add to a cushion, dollar strength and foreign fund outflows were the big winners. For Indians, the weak rupee is translating into higher import costs, but oil prices have fallen at least in a small amount. So we need to see if the rupee will go up or down in the coming weeks.