Rupee slumps 17 paise to 3-week low against US dollar on geo-political worries

The rupee on Monday slumped by 17 paise to close at a more than three-week low of 74.60 against the US dollar due to high crude oil prices, forex outflows and heavy losses in domestic equities amid growing geopolitical worries.

Forex traders said the strength of the American currency in the overseas market and weak appetite for riskier assets also dragged down the local unit.

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Moreover, market participants are now eyeing the US Fed's January 25-26 meeting for further cues.

"The Indian rupee has weakened amid the big crack witnessed in domestic equities in tandem with other Asian markets. The sentiments are quite fragile in the markets amid the geopolitical tensions in Eastern

Europe and as investors are fretting over the possibility of a quicker pace of interest rate hikes in the US," Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking Ltd.

Riskier assets have come under pressure amid the prospects of a Russian invasion of Ukraine. The US and the UK have advised the families of their diplomats in Ukraine to leave the country.

At the interbank foreign exchange market, the local currency opened at 74.43 against the greenback and witnessed an intra-day high of 74.42 and a low of 74.69 during the session.

The rupee finally settled down by 17 paise or 0.23 per cent at 74.60, the lowest closing level since December 27, 2021.

The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.12 per cent up at 95.75.

Brent crude futures, the global oil benchmark, rose 0.33 per cent to USD 88.18 per barrel.

With inflationary pressures building up, the overwhelming consensus suggests that the era of near-zero interest rates is likely to come to an end very soon, Sachdeva said, adding that the rupee is still finding some comfort from the fact that the country's forex reserves have surged by USD 2.229 billion to USD 634.965 billion for the week ended January 14.

As for the near-term direction, the domestic currency will take further cues from the Fed's upcoming policy meeting and the inflation outlook. Any breach of the 74.80 mark will further drag the Indian rupee downwards towards the 75.20 mark in the coming days.

"Risk sentiments soured further on today, with equity markets remaining under sellers in control as domestic benchmark index plunged through key support levels, while safe-haven currencies bided well on the back of geopolitical worries," said Dilip Parmar, Research Analyst, HDFC Securities.

Ahead of the US Fed meeting, any uncertainty over geopolitical will be converted into a dollar rally. Indian rupee started the week on a weaker note following foreign fund outflows and weaker domestic equities, Parmar noted.

"Spot USDINR is expected to trade with negative bias on the back of geopolitical worries and with hawkish Federal Reserve. From level perspective, derivative data indicating USDINR likely to trade between 74.50 to 75 in coming days," Parmar said.

According to Jateen Trivedi, Senior Research Analyst at LKP Securities, the Indian Rupee felt the heat amid weak global equity markets, especially panic selling in Indian secondary markets.

"Higher crude prices also pushed rupee lower. Going ahead rupee can be seen in a range of 74.45-74.90," Trivedi said.

On the domestic equity market front, the BSE Sensex ended 1,545.67 points or 2.62 per cent lower at 57,491.51, while the broader NSE Nifty declined 468.05 points or 2.66 per cent to 17,149.10.

Foreign institutional investors remained net sellers in the capital market on Friday as they offloaded shares worth Rs 3,148.58 crore, according to stock exchange data.