The Indian rupee opened stronger at 94.35 against the dollar on Thursday as global crude oil prices plunged over 8 percent. Dealers said the currency may trade between 94.00 and 94.75 today. Lower oil costs could ease pressure on India’s import bill, though importers might use this dip to buy.
The Indian rupee opened stronger at 94.35 per dollar on Thursday, up from its previous close of 94.64, supported by a sharp decline in global crude oil prices and a weaker dollar index. The domestic currency is expected to trade in the 94.00-94.75 range during the day, dealers said. Brent crude, the global oil benchmark, plunged over 8 percent overnight, falling below the psychologically important $100-per-barrel mark to trade at $93.84 on Thursday morning. The decline marked crude's steepest single-day fall since May, as markets reassessed geopolitical risks following the sweeping Democratic victory in the US midterm elections.
Markets are increasingly pricing in the possibility of diplomatic efforts to resolve the US-Israel conflict with Iran, while a Democratic-controlled Congress could constrain funding for further military escalation. This has led to an unwinding of the geopolitical risk premium in oil prices. The dollar index, which measures the greenback against a basket of six major currencies, also declined to 101.30, providing additional support to the rupee. "With the dollar index falling to 101.30, the dollar will get bought intra-day, taking it higher towards possibly 94.75, which exporters should consider an opportunity to sell, while importers can continue to buy the dips and hedge their positions up to December.
Even large importers can think of paying 9 paise per month (FERR charges) and hedge their payables above $2 million of underlying," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP. A forex trader said the fall in crude prices could ease pressure on the rupee by lowering India's oil import bill and reducing dollar demand from oil companies. However, the currency may not see significant appreciation as importers are likely to use lower levels to cover their dollar requirements. India's dependence on imported crude oil makes movements in global oil prices a key determinant of the rupee's direction.
A sustained correction in crude prices could ease pressure on the country's import bill and improve the outlook for the domestic currency.