Rupee Closes Almost Flat Against US Dollar, Worries Over Crude Oil Prices and Inflation Weigh

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The Indian rupee closed almost flat against the US dollar on Monday, weighed down by elevated crude oil prices and global inflation worries. The local currency opened at 82.93 against the greenback and traded in a range of 82.83 to 83.06 during the day. It finally settled at 83.03, down 1 paisa from the previous close.

The rupee’s weakness was due to a combination of factors, including:

  • The recent rise in crude oil prices, which have been above $90 per barrel for the past few weeks. This is a major factor that has weighed on the rupee, as India is a net importer of oil.
  • Global inflation concerns, which have led to a strengthening of the US dollar. The US dollar is seen as a safe haven currency during times of uncertainty, and investors tend to buy it when they are worried about the global economy.
  • The ongoing war in Ukraine, which has disrupted global supply chains and contributed to inflation. The war has also led to higher energy prices, which is another negative for the rupee.

However, the rupee was supported by a weaker US dollar against major rivals overseas. The dollar index, which measures the greenback’s strength against a basket of six currencies, fell 0.42% on Monday. This was due to a number of factors, including the release of weak economic data from the US and the expectation that the European Central Bank (ECB) will raise interest rates soon.

On the domestic equity market front, the BSE Sensex closed 0.79% higher at 67,127.08, while the NSE Nifty advanced 0.89% to 19,996.35. Foreign institutional investors (FIIs) turned net buyers in the capital markets on Monday, purchasing shares worth Rs 1,473.09 crore. This also supported the rupee.

Analysts expect the rupee to trade with a slight positive bias in the near term, supported by a weaker US dollar and positive domestic equities. However, they warned that the currency could come under pressure if crude oil prices continue to rise.

The following are some additional factors that could affect the rupee in the coming days:

  • The outcome of the US Federal Reserve’s monetary policy meeting on Wednesday. The Fed is expected to raise interest rates by 75 basis points, which could strengthen the US dollar and put pressure on the rupee.
  • The release of US inflation data on Friday. If inflation in the US comes in higher than expected, it could also strengthen the US dollar and put pressure on the rupee.
  • The progress of the war in Ukraine. If the war drags on or escalates, it could lead to higher energy prices and further pressure on the rupee.

Overall, the outlook for the rupee is mixed. The currency is likely to remain under pressure from elevated crude oil prices and global inflation concerns. However, it could also benefit from a weaker US dollar and positive domestic equities.


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