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The rupee ended at a seven week low as the worsening crisis in Iraq threatened to disrupt oil supplies. During intra-day trades the rupee had revisited the near 2-month low of Rs 60.55 per dollar, but after intervention by the Reserve bank of India (RBI), the rupee recovered a tad.
The rupee ended at Rs 60.40 compared with previous close of Rs 60.02 per dollar. The rupee had opened at Rs 60.29. teh rupee had ended at Rs 60.43 on April 29.
Tuesday, RBI governor Raghuram Rajan assured markets that India is watching the situation in Iraq, but despite the uncertainty the domestic economy is better prepared to deal with any shocks on the external front.
Brent crude rose towards $114 a barrel on Wednesday as Sunni militants pushed forward in northern Iraq, striking a key refinery near Baghdad and stoking worries about oil exports from the key producer.
The country imports nearly two-thirds of its oil needs, leaving its currency especially vulnerable to price swings. A fall in domestic stocks due to waning risk appetite added to the rupee's losses.
Shares fell over 1% on Wednesday as oil refiners such as Bharat Petroleum Corp slumped on concerns about the impact of higher oil prices on inflation and the government's finances.
"I don't see any surprise from Fed, and the rupee move will depend on crude prices. Any sharp move will be countered by the RBI," said Uday Bhatt, a foreign exchange dealer with UCO Bank.
Meanwhile, government bond yields inched up tracking weakness in rupee and concerns that inflation may inch up due to rising oil prices.
The yield on the 10-year benchmark government bond ended at 8.67% compared with previous close of 8.60%. “The yield movement will now depend upon how the rupee behaves and how the Iraq story pans out,” said Siddharth Shah, vice president, STCI Primary Dealer.
Bond traders see the yield on the 10-year bond moving up to 8.75% in the near-term.
