What lies in store for the rupee as the dollar strengthens, crude oil boils?

As Russian forces advance further into neighbouring Ukraine, global crude oil prices are on the boil again, going past the $100 per barrel mark, with little likelihood of them easing anytime soon. 

This has had a direct impact on currencies of emerging markets like India, which depend on imports for most of their energy needs. A weaker currency will, in turn, again push up India’s import bill and widen the trade deficit.

As crude oil prices rose, on Thursday, the Indian rupee took a tumble against the US dollar, sliding down 99 paise to Rs 75.60 before clawing back about 32 paise on Friday to reach Rs 75.28 to the greenback.

So, where exactly is the rupee headed?

Forex traders expect the Indian rupee will continue to remain volatile as foreign investors keep a close eye on the events in Ukraine. 

According to ICICIDirect, the rupee is expected to depreciate due to rising crude oil prices and higher FII fund outflows from domestic markets. Risk aversion in global markets and expectations of better personal spending data from the US may continue to support the dollar. The brokerage expects the rupee to fall towards 76.50 for the day.

How is the dollar index doing?

The dollar index, which gauges the greenback’s strength against a basket of six currencies, surged 0.98% on Thursday after Russia invaded Ukraine as investors moved towards safe-haven assets. Further, better-than-expected GDP and initial jobless claims data from the US also lifted the dollar. However, sharp gains were capped on a decline in US treasury yields, according to ICICIDirect.

The dollar index was trading 0.36% lower at 96.78 on Friday. The rupee opened stronger against the US dollar on Friday, tracking a rebound in Asian equities and a slight pullback on the dollar index.

“Crude oil prices were still stronger and could cap appreciation. However, most Asian and emerging peers were stronger against the US dollar and could lift sentiments," Sriram Iyer, Senior Research Analyst at Reliance Securities, was cited as saying in a Press Trust of India report.

Which way are crude oil prices likely to go?

Global oil benchmark Brent crude futures rose 2.40% to %101.46 per barrel and are likely to remain at these elevated levels.

How are the Indian stock markets trading Friday?

The 30-share Sensex was trading 1,572 points, or 2.88%, higher at 56,102.43, while the broader NSE Nifty advanced 466 points, or 2.8%, to 16,714.20 just before noon.

Foreign institutional investors were net sellers in the capital market on Thursday, as they offloaded shares worth Rs 6,448.24 crore, as per stock exchange data.