Rupee Declines Past 86 Mark as Dollar and Oil Prices Rise

The Indian rupee opened trading on a lower note, crossing the psychologically significant level of 86 per dollar. On Friday, the rupee had already closed at 85.97 against the US dollar, marking three consecutive days at this record low.

At the start of the trading session, the rupee depreciated by 5 paise, opening at 86.20 against the dollar. The weakening of the Indian currency was influenced by the dollar index climbing to over a two-year high, as well as a sharp rise in oil prices.

On Friday, the rupee had already shown signs of weakness in the offshore non-deliverable forward market, breaching the 86 mark.

Amit Pabari, managing director of CR Forex Advisors, noted that although the Reserve Bank of India (RBI) usually intervenes to stabilize the rupee during drastic declines, liquidity constraints can hinder its ability to sell dollars without exacerbating the deficit. Nonetheless, the RBI took action when the rupee hit 86.20, demonstrating its commitment to manage excessive depreciation.

The dollar index, which gauges the strength of the US dollar against six major global currencies, surged to 109.97 on Friday, the highest level since November 10, 2022. This increase followed the announcement of stronger-than-expected employment data in the US, along with a rise in one-year inflation expectations.

Kunal Sodhani, vice president of Shinhan Bank, shared that the US Nonfarm Payrolls reported an addition of 256,000 jobs, significantly surpassing the expected 227,000 jobs, while many economists had predicted a slower growth rate of only 160,000 jobs.

The solid employment report raised concerns that the US Federal Reserve may consider fewer interest rate cuts than previously anticipated.

Sodhani added that the CME FedWatch Tool indicates a 93.1% probability that interest rates will remain unchanged during the Fed's January meeting, with market participants now expecting only a 30 basis point reduction throughout the year, revising down from earlier projections of a 45 basis point cut before the jobs report.

Additionally, crude oil prices have seen a rise, going up to $81.49 per barrel, their highest since October 28, 2024. This uptick is attributed to worsened supply forecasts following new sanctions imposed by the US on Russian oil supplies. These sanctions are expected to significantly impact oil imports to countries like India and China, particularly targeting large exporters, insurance firms, and over 150 tankers.

Market experts suggest that the rupee might fluctuate between 85.90 and 86.20 throughout the day. Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, indicated that exporters may wait for a stop loss at 85.75 while anticipating that the rupee will continue its downward trend due to sustained dollar demand, advising importers to capitalize on dips.

As the stock market opens, indices such as the Nifty and Sensex are trading lower, reflecting the rupee's decline past the 86 mark for the first time.

Rupee, Dollar, Oil