The Indian rupee is forecast to decline at tomorrow’s opening session and trade within the 94.25-94.30 range against the US dollar, following steady declines over the past 10 days from its peak of 92.70.
The major contributing factors to the weakening of the currency include rising oil prices and the poor performance of Asian currencies. The most important factor keeping oil prices at their current levels is the situation in the Middle East.
Despite the ceasefire between the US and Iran being in place for the past two months, oil shipments through the Strait of Hormuz haven’t resumed. Consequently, Brent crude is forecast to continue its seven-day straight rise to $109.40.
In India, this has become a significant economic challenge because oil refineries must purchase massive amounts of US dollars to pay for expensive fuel imports. This high demand for dollars naturally endorses the rupee’s value.
While the Reserve Bank of India (RBI) has provided some relief, market experts say its support has been selective. Rather than aggressively defending the rupee, the bank is supplying dollars only upto a certain point before stepping back.
Given the rise in the US Dollar Index, the scope for the rupee to regain its lost value is quite slim at present. The expectation is that oil prices will remain close to the three-week peak until the Strait of Hormuz remains closed, thereby placing considerable stress on the Indian currency.
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The implication of this analysis is that local market movements are greatly influenced by global geopolitical tensions.
