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With global oil prices falling to their lowest level in more than five-and-a-half-years, the dollar buying by Oil Marketing Companies (OMCs) has also fallen sharply compared to a few months ago.
As crude oil prices are expected to soften further, this is a positive factor for the currency market that may face outflows by Foreign Institutional Investors (FIIs) once the US Fed starts hiking interest rates later in 2015.
“About six months ago OMCs' average daily dollar buying was about $600 million, which has now come down to about $200-250 million. The drop in dollar demand is attributed to softening of global crude prices,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.
The reduced demand for dollars by OMCs and continued dollar sale by banks has been helping the rupee to appreciate against the dollar. The rupee was trading at 62.07 in afternoon trades compared with previous close of 62.14 per dollar.
“We have been seeing lesser bids by OMCs as they are hedging less. But we need to see how long this phenomena continues,” said Naveen Raghuvanshi, a currency trader at DCB Bank.
