Oil Falls 11% as Indian Rupee Eyes Open at 94.75 per Dollar
Key Facts
Traders expect the Indian rupee to open Tuesday at 94.75–94.78 per dollar, after closing Monday at 94.90, as Brent crude fell 11% in the previous session. Reuters said lower oil prices could support the Indian currency, but do not guarantee further gains given the dollar’s strength and nearby technical resistance. The forecast followed a session in which the rupee did not fully benefit from lower crude prices and a weaker dollar, ending at 94.90 compared with 94.95 at Friday’s close. Traders said renewed dollar demand capped its recovery during the session. Industrial production data for September showed annual growth, albeit slower than in August, adding a domestic indicator to investors’ watch on the rupee, inflation and import costs.
Brent traded at $104.70 in Asian markets on Tuesday, after falling 11% on Monday. Reuters linked the decline to hopes for a resolution to the U.S.-Israeli war with Iran, following talks between Iranian and Qatari officials, which could help stabilize crude supplies from the Middle East. Oil price movements are particularly important for India, which imports about 90% of its oil needs, Reuters said. The agency said higher prices weaken the country’s economic outlook, increase corporate demand for currency hedging and weigh on foreign portfolio investor flows. Lower crude prices could therefore ease these pressures, but the rupee’s performance in the previous session showed that falling oil prices do not necessarily translate immediately into the closing exchange rate when dollar demand persists.
The rupee closed Monday at 94.90 per dollar, compared with 94.95 on Friday, after trading between 95.03 and 94.69 during the session. The dollar index stood at 101.5 points, down from 101.7 the previous day, but the Indian currency did not make a clear recovery despite falling oil prices and a weaker dollar, according to traders quoted by the Economic Times. Foreign portfolio investors, meanwhile, bought domestic shares for a net 3,114 crore rupees, a flow that supported the currency, the newspaper said. Traders, however, pointed to renewed dollar demand after the rupee rebounded from its intraday lows. This reflects the competing forces moving the exchange rate: improved equity flows and lower crude prices on one side, and companies’ and investors’ dollar needs on the other.
The currency’s moves coincide with a slowdown in Indian industrial production growth to 6.7% year on year in September, from 8.0% in August in the quick estimate, according to the Press Information Bureau of India, citing the Ministry of Statistics. The ministry announced the figure on October 28, and it relates to September, not October. Manufacturing grew 7.6%, while electricity and gas supply expanded 11.2%, making the two sectors among the strongest contributors to the index’s growth. The details show uneven performance across industrial activities: manufacture of electrical equipment rose 33.9%, rubber and plastic products 19.9%, and motor vehicles, trailers and semi-trailers 19.0% compared with September of the previous year. These figures provide context on domestic activity, while their effect on the rupee remains intertwined with energy costs, dollar demand and capital flows.
Sectoral comparison data show why the measurement months must be kept separate: mining and quarrying contracted 6.2% in August, while overall industrial production index growth was 6.7% in September, according to the ministry’s statement. The contraction rate is not a September result; it relates to the previous month, while September data showed strength in manufacturing and electricity and gas supply. On the currency front, the rupee ended October up about 1% month on month, its strongest monthly performance since February, and closed on October 30 at 94.95 per dollar, Reuters said. On October 12, it rose 1% to 95.77 per dollar from 96.73 at the October 9 close, after the central bank took measures that included shifting oil companies’ dollar purchases away from the spot market. Reuters estimated that this window could move about $10–12 billion a month in oil companies’ demand out of the spot market.
A subsequent decline in foreign exchange reserves highlights the pressures surrounding the currency: reserves fell to $734 billion on October 2, after reaching a record $785 billion in September, according to data reported by Reuters. This comes amid capital-flow volatility and dollar demand that accompanied the rupee’s moves through October and early November. Reuters quoted analysts at ANZ Bank as saying sustained balance-of-payments pressure could bring a gradual decline in the rupee after the initial impact of the central bank’s measures fades. In the near term, a trader told Reuters that the 94.50–94.70 rupees per dollar range represents an important technical resistance zone, even as the currency is expected to open on a strong note. India’s statistics ministry is scheduled to publish October industrial production index data on November 30.