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Fundamental Analysis

Bloodbath in forex market as rupee tumbles over 100 paise vs dollar


NEW DELHI – The rupee went into free-fall against the US dollar on Thursday, shedding more than a hundred paise in a single day’s trade as Russia’s invasion of Ukraine sparked a surge in crude oil prices to multi-year highs and a global wave of risk aversion, dealers said.

The partially convertible rupee was at 75.65/$1 at 3:30 pm on Thursday as against 74.55/$1 at the previous close. The Indian currency, which had opened at 74.65/$1, moved in a band of 74.6860-75.6500/$1 in the course.

Russia, which has recognized two separatist factions within Ukraine, invaded the country on Thursday, with more than 100 deaths reported so far.

With Western powers expected to impose stricter sanctions on Moscow than have been so far, global supplies of crude oil may be disrupted, given that Russia is a large exporter of the commodity.

Prices of Brent crude, the global benchmark, rose past the $100 per barrel mark for the first time in seven years and traders fear a further rise in the price of the commodity, given the geopolitical situation.

The development has severely weakened the outlook on the rupee, given the threat of higher trade deficits and inflation posed by the hardening of oil prices. India is the world’s third-largest importer of commodity.

The military conflict in Ukraine also led to a substantial strengthening of safe-haven assets such as the US dollar as investors rushed to dump riskier emerging market currencies, dealers said.

The US dollar index, which measures the greenback against six major rival currencies, rose past the 97 mark from 95.85 around 4 pm on Wednesday. The index was last at 97.05.

A bloodbath in domestic equity markets also dragged the rupee lower, dealers said, with the Nifty 50 and the BSE Sensex giving up 4.8 per cent and 4.7 per cent respectively.

Dealers feel, however, that in the coming days, the rupee may find some support around the 75.50/$1 mark as the Reserve Bank of India is likely to expend some of its foreign exchange reserves in order to prevent undue volatility in the exchange rate.

The latest data on the RBI’s website showed that total foreign exchange reserves were at a massive $630.19 billion as of February 11.

“The news flow today (Thursday) was entirely negative on all fronts; there is no telling where the ceiling for oil prices is now, especially given that Russia has just invaded Ukraine,” a dealer with a foreign bank said on condition of anonymity.

“Risk aversion is very strong at the moment and it is entirely up to the RBI to draw the line with regard to the depreciation of the rupee. The RBI’s FX reserves are large enough to quell speculation but the volatility will only stop once the central bank makes its presence felt. We feel that 76/$1 will be a protected level,” he said.

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