The rupee depreciated 33 paise on Wednesday and settled at a nearly one-month low of Rs. 82.59 per US dollar due to demand for safe-haven currencies after the US’ credit rating was downgraded by Fitch from ‘AAA’ to ‘AA+’, citing an “expected fiscal deterioration over the next three years”.
This led to risk aversion sentiment among investors, said dealers, adding that the dollar demand by oil companies was also a reason for the currency to weaken.
The Indian unit settled at Rs. 82.26 per US dollar on Tuesday.
“There has been an increasing dollar demand in the past four/five sessions due to which the rupee has come under pressure. After the initial intervention by the Reserve Bank of India (RBI) around 81.67 levels, oil companies, corporates, and importers started to hoard the dollar, looking at the RBI’s intolerance to sharp appreciation in the local unit,” said Amit Pabari, managing director, CR Forex.
Although the Indian rupee depreciated by 0.4 per cent on Wednesday, it still performed better than several Asian currencies.
“For some time, the Indian rupee has been underperforming due to persistent dollar buying by the RBI,” said Anindya Banerjee, vice-president-currency derivatives & interest rate derivatives at Kotak Securities.
“The Indian rupee is undervalued, so at the time of depreciation, it won’t be valued that much,” he added.
The South Korean won, the Philippines peso, and the Malaysian ringgit depreciated by 1.1 per cent, 0.72 per cent, and 0.52 per cent, respectively.
Furthermore, the Indian unit faced additional pressure following a surge in international crude oil prices, which are now hovering around $85 per barrel.
India, which imports 80 per cent of its oil requirements, saw a notable increase in oil imports from Russia following the war in Europe, which started last year.
Speculations were rife that Russia, already holding a substantial surplus of the Indian currency, estimated to be $20-$30 billion, might begin withdrawing these funds back to their home country, dealers said.
Russian oil accounted for 41.9 per cent of India’s overall oil imports in July.
“The current demand for the dollar is in anticipation of the rupee weakness led by foreign outflows if Russians start to withdraw their rupee-denominated investments in Indian government bonds,” said Pabari.
However, the discount on Russian oil has significantly diminished, rendering it impractical to purchase oil from Russia. The discount has been reduced to less than $5 per barrel as compared to $30-$35 per barrel last year, prompting the importers to turn towards West Asian countries, dealers said.
The rupee is expected to trade in a range of Rs. 82.4-82.8 a dollar on Friday on caution ahead of US retail sales and jobless claim data. Investors also eyed the Bank of England’s monetary policy decision. The central bank is largely expected to hike rates by 25 basis points.