Indian rupee to stay under pressure; high oil prices spur importer hedging, dampen flows

MUMBAI: The Indian rupee is expected to remain under pressure on Monday, weighed down by importer hedging demand spurred by stubbornly ​high oil prices, which are impacting other flows.

The rupee is expected ‌to open in the 94.26-94.30 range, traders said, after settling at 94.2475 on Friday.

The currency tumbled 1.42% last week, marking its worst weekly performance in three-and-a-half years.

The ​slide was driven by a combination of factors, including a sharp ​rise in oil prices amid no sign of a resolution ⁠to disruptions around the Strait of Hormuz, and the central bank’s ​partial rollback of measures that had been supporting the rupee.

These factors are likely ​to continue weighing on the currency this week, traders said, with oil prices playing the bigger role, a trend that has persisted for several weeks.

Brent crude climbed to ​just shy of $108 a barrel on Monday, the highest in three ​weeks, extending last week’s 16.5% rally.

Peace talks between the US and Iran stalled, while shipments ‌through ⁠the Strait of Hormuz remained limited, keeping oil supplies tight and prices on the rise.

At these oil prices, there’s little relief for the rupee, a currency trader at a private-sector bank said.

High oil prices push importers ​into hedging, capital ​inflows remain weak, ⁠and exporters don’t see much reason to step up dollar selling, he added.

Although foreign investors have moderated their ​selling of Indian equities in recent days, outflows have ​yet to ⁠reverse.

The lack of portfolio inflows, along with the prospect of higher oil import bills, is adding to the rupee’s woes.

Foreign investor outflows from Indian ⁠equities have ​slowed to just under $5 billion so far ​this month from over $12.5 billion in March.

Traders note that, despite the slowdown, flows remain negative ​and continue to pressure the rupee.