The Indian rupee has weakened over 1% in three trading sessions, with the currency falling 27 paise to 95.79 against the US dollar in early trade on Friday, September 11, according to Business Standard. The rupee opened at 95.70 against the dollar and weakened further to 95.79 per dollar, down from its previous close of 95.52 per dollar on Thursday. The currency had touched a two-month high of about 94.30 per dollar last week but has since retreated to nearly 95.80 on Friday. The rupee's weakness was attributed to elevated crude oil prices, rising global yields and net foreign portfolio equity outflows, which increased pressure through the import bill. However, record foreign exchange reserves, active Reserve Bank market intervention and robust domestic growth provided countervailing support to the currency.
Anindya Banerjee, head of commodity and currency research at Kotak Securities, said pressure on the rupee continued with costly crude oil and foreign portfolio investor outflows keeping the rupee above the 95-per-dollar mark. He noted that 95 may now act as a support level, while 96 could be the next target for the currency. According to Business Standard, Ajay Kedia, director at Kedia Advisory, said the rupee had weakened about 1% over the past three trading sessions, with Brent crude moving close to $110 per barrel and a sharp increase in US bond yields increasing pressure. Kedia identified the 96-96.24 range as important for the rupee against the dollar, while support is seen around 95.35.
The dollar index, which measures the strength of the US dollar against six major currencies, was trading 0.12% higher at 99.16, while Brent crude futures, the global oil benchmark, were down 0.76% at $108.45 per barrel, as reported by Business Standard. Oil prices remained elevated amid rising tensions between the United States and Iran and concerns over possible disruption in crude supplies through the Strait of Hormuz. However, Anindya Banerjee noted that crude oil staying above $100 per barrel and rising global bond yields meant that India's increasing import bill was currently the biggest pressure point for the currency. Ajay Kedia said as long as Brent crude remains above $100 per barrel and the threat of food inflation persists due to El Nino, volatility and weakness in the rupee may continue.
The Reserve Bank of India partially cancelled an auction of shorter duration government securities on Friday, accepting bids worth only ₹4,506 crore ($471.12 million) for the 6.20% 2029 bond, according to The Hindu BusinessLine. This represented just over 40% of the planned borrowing in the paper worth ₹110 billion. The central bank sold the seven-year bond at a yield that was slightly higher than expected, while a new 30-year paper was auctioned at a cutoff yield that was in line with estimates. As per market participants, this cancellation was a premium article, available exclusively to subscribers, and was seen as an early indication from Indian authorities on interest rate policy.
Ajay Kedia identified inflation as emerging as the second major risk for the rupee, with food inflation having already increased to 5.52% in July. According to Business Standard, a strengthening El Nino had led to significant volatility in the monsoon, with rainfall in June being 35% below normal. If September rainfall also remains below normal, production of cotton, soybean, maize and pulses may be affected. The Food and Agriculture Organization food price index rose to 133.3 in August, the highest level since November 2022, with poor weather and rising global tensions affecting prices of cereals, edible oils and sugar. Pranay Agarwal from Stoxkart noted that a weaker rupee can make imports costlier, increasing the risk of inflation and affecting companies whose costs are denominated in dollars.
