INR vs USD: Rupee Remains Under Pressure at 95.95 as Rising US Yields Add to Its Woes 

Mumbai, May 15: The rupee remained under pressure on Friday, as elevated crude oil prices and rising U.S. Treasury yields continued to weigh on the local unit. Moreover, the currency was seen heading for a weekly decline of more than 1%, extending a sharp losing streak sparked by tensions in the Middle East.

The rupee slumped to a record low of 95.9575 against the US dollar, which was also touched in the previous session. At the time of writing, it was trading 14 paise down at 95.91. The rupee opened 11 paise lower at 95.8700.

Worst Performing

Persistent strength in the dollar, along with boiling oil, has piled pressure on Asia’s worst-performing major currency this year.

Brent crude climbed to nearly $107 per barrel as ship attacks and seizures in the Gulf region sparked fears of supply disruptions. India, which imports the bulk of its crude needs, sees widening current account deficit, rising and increasing dollar demand from oil marketing companies if oil prices rise and stay elevated.

US Yields

The latest villain adding to the rupee’s woes are the sharp rise in U.S. bond yields. The benchmark 10-year U.S. Treasury yield climbed to 4.53%, its highest level in nearly a year, amid possibility of another Federal Reserve rate hike as inflation concerns mount overhigher energy prices. Higher U.S. yields typically attract capital flows into dollar assets, hurting emerging market currencies such as the rupee.

The dollar index, meanwhile, was on track for its strongest weekly gain in more than two months, further adding to pressure on global currencies.

Foreign Outflows

Foreign portfolio outflows have also contributed to the rupee’s slide. The rupee has weakened more than 6% so far this year, with overseas investors pulling out nearly $20 billion from Indian assets since tensions in the Middle East escalated.

State-run banks were reportedly seen selling dollars on Friday, likely on behalf of the Reserve Bank of India, helping prevent a sharper fall in the currency. However, the rupee could remain vulnerable as long as oil prices stay elevated and global risk appetite remains weak.

The Indian government and the RBI have also taken steps to contain pressure on the currency and conserve foreign exchange reserves. Earlier this week, India raised import duties on gold and silver to 15% from 6% in a bid to curb bullion imports and reduce pressure on the trade deficit.

Moreover, the government raised petrol and diesel prices by more than 3%.

Investors are now awaiting India’s April trade data and further signals from global central banks for clues on the rupee’s near-term direction.

Source:

• spot rates from https://www.moneycontrol.com/markets/currencies/