The Indian rupee opened at 96.68 against the US dollar on Thursday (October 8), compared with Wednesday’s (October 7’s) close of 96.78, offering a modest recovery after the currency fell 0.4% in the previous session.
The rupee on Wednesday (October 7) had slipped to its weakest level since mid-May and just 18 paise away from its all-time low of 96.96.
The weakness came a day after the Reserve Bank of India raised the repo rate and changed its policy stance, a move Goldman Sachs described as a hawkish rate hike. The policy decision appears to have triggered some catch-up positioning and hedging in the currency market, according to a currency trader cited in the report.
For the rupee, the 97-per-dollar level is likely to be important in the near term. A break above that level could encourage importers to increase hedging, while exporters may hold back dollar sales, the trader said.
Oil prices add to pressure
Higher crude oil prices are another headwind for the rupee. Brent crude rose above $102 a barrel on Thursday, as concerns over supply from the Middle East and disruptions to shipping through the Gulf and Strait of Hormuz persisted.
Higher oil prices can weigh on the rupee because India imports most of its crude oil requirement. A sustained rise in crude prices can increase the country’s import bill and demand for dollars, putting pressure on the domestic currency.
Goldman Sachs expects the RBI to raise the repo rate by another 25 basis points in December, after Wednesday’s hike and stance change.