War effect: Commodity prices to keep Rupee weak

New Delhi, March 5: High commodity prices as well as outflow of foreign funds from equity markets are expected to subdue the Indian rupee further.

Rising prices of crude oil along with other commodities triggered by Russia-Ukraine war will keep the rupee weak. However, interventions by the Reserve Bank might cap the downside to rupee against the USD.

The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.

“Rupee closed at 76.18 on Friday rattling under war cries and high crude prices. Expect this to continue for a while and expect further weakness till 76.80 next week or unless central bank intervenes aggressively,” said Sajal Gupta, Head, Forex and Rates, at Edelweiss Securities.

“Commodity prices across the globe would stoke inflation and push yuelds higher and this shall weaken the currencies.”

Lately, Brent-indexed crude oil prices have skyrocketed. On Friday, it stood at $113.76 per barrel from a 10-year high of $119.84 per barrel a day before.

Russia is the third largest producer of crude oil in the world. It is feared that sanctions against Russia will curtail global supplies and stifle growth.

The geo-political crisis-led global hike in crude oil prices is expected to push India’s domestic prices of petrol and diesel by Rs 15-22 per litre. India imports 85 per cent of its crude oil needs.

Consequently, the Indian rupee was the worst performing Asian currency for the past week, losing by whoppping 1.15 per cent.

“High crude oil prices are stroking fears of worsening fiscal deficit. High commodity prices will result in imported inflation leading RBI to change monitory policy stance and hike rates,” said Devarsh Vakil, Senior Analyst (Commodities), HDFC Securities.

“Spot USDINR expected to trade in the range of 76.30 to 76.50 while the support has now shifted to 75.70. Developments on the War front in Ukraine will drive prices this week.”

According to Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services: “Next week, market participants will continue to keep an eye on the situation between Russia and Ukraine as any escalation could attract safe haven in the dollar and precious metals.”

“We expect the USDINR (Spot) to trade sideways with a positive bias and quote in the range of 75.80 and 76.50.”