Rupee falls 22 paise to close at 83.40 against US dollar on crude prices

The rupee settled 22 paise lower at 83.40 against the US dollar on Wednesday, tracking a negative trend in domestic equities, elevated crude oil prices, and foreign fund outflows.

Forex traders said dollar demand from importers and oil marketing companies (OMCs) also weighed on the rupee.

However, foreign inflows in the bond markets ahead of inclusion on India's government bonds in global bond index cushioned the downside.

At the interbank foreign exchange market, the local unit opened at 83.22 and finally settled for the day at 83.40, down 22 paise from its previous close.

On Tuesday, the rupee pared initial gains to settle 5 paise lower at 83.18 against the US dollar.

"We expect the rupee to trade with a slight negative bias on month-end dollar demand from OMCs and importers to meet their obligations. Risk aversion in global markets and a strong US dollar may further pressurize the rupee," said Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas.
 

However, fresh foreign inflows in FPIs and bond markets may support the rupee at lower levels.

Traders may take cues from Richmond manufacturing index and speeches from US Fed officials. Investors may remain cautious ahead of core PCE price index data later this week, Choudhary added.

"The rupee fell after rising to 83.03 the day before, mirroring the fall in Asian currencies with government-related buying, along with month end oil demand and FPIs buying dollars," Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP, said.

"The S&P gave a positive outlook on India, saying it may raise the ratings of the country if net change in general government debt falls below 7 per cent of the GDP," Bhansali said.

"Also there could be a case of rating upgrade if it observed substantial improvement in the Central Bank's monetary policy effectiveness and credibility, such that inflation is managed at a durably lower rate over time. This took the rupee to 83.27 but it was short-lived as demand was higher for the day," he said.

Bhansali added that on Thursday rupee is expected to be in a range of 83.20-83.50 as month-end buying may continue and the Reserve Bank of India will be seen to protect the rupee.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 105.01, higher 0.37 per cent, on hawkish Fed speak and upbeat economic data from the US.

Brent crude futures, the global oil benchmark, rose 0.78 per cent to USD 84.88 per barrel.

On the domestic equity market, the 30-share BSE Sensex declined 667.55 points, or 0.89 per cent, to close at 74,502.90 points. The broader NSE Nifty fell 183.45 points, or 0.8 per cent, to close at 22,704.70 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Wednesday, selling shares worth Rs 5,841.84 crore, according to exchange data.