The Indian rupee weakened 13 paise to 95.56 against the US dollar in early trade on Monday, pressured by higher crude oil prices and geopolitical tensions. Growing expectations of a September US Federal Reserve rate hike also strengthened the dollar, adding to pressure on the domestic currency.
At the interbank foreign exchange market, the rupee opened at 95.56, down 13 paise from its previous close. On Friday, the currency had gained 2 paise to settle at 95.43 against the US dollar.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said the rupee opened lower, with the dollar index at 99.62. At the same time, most other assets declined from their Friday levels.
Bhansali expects the rupee to remain in the 95.25-95.75 range, with exporters likely to sell near 95.60 and importers buying on dips. He said there was no clear directional movement in currencies.
Forex traders said market participants have increased the probability of a September Fed rate hike, pushing US Treasury yields higher and triggering a broad dollar rally. The stronger dollar has further weighed on investor sentiment and the rupee.
The dollar index, which measures the greenback against a basket of six major currencies, was trading at 99.62, down by 0.07 percent.
Brent crude, the global oil benchmark, rose 1.34 percent to USD 89.28 per barrel in futures trade. A renewed Middle East supply-risk premium drove the increase following the US strike on Iran’s Larak Island and subsequent Iranian retaliation.
The developments have raised fresh concerns over oil flows through the Strait of Hormuz, adding pressure on currencies of oil-importing economies such as India.
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Forex traders said the RBI is intervening in the market to prevent any significant depreciation in the rupee. Better-than-expected flows under the FCNR(B) scheme also supported investor sentiment.
Meanwhile, India’s foreign exchange reserves rose USD 12.422 billion to a record USD 729.328 billion during the week ended August 21, according to the RBI.
Domestic equities opened lower, with the Sensex declining 226.60 points to 77,028.56, while the Nifty fell 120.40 points to 24,053.55.
Foreign institutional investors sold equities worth Rs. 5,039.80 crore on a net basis on Friday, according to exchange data.
Meanwhile, the Commerce Ministry is scheduled to meet industry associations and export promotion councils on September 1 to discuss India-US trade performance. The meeting will be chaired by Additional Secretary Darpan Jain, who is also India’s chief negotiator for the India-US bilateral trade agreement.