After weakening close to 1% in the previous session, the rupee dropped another 0.27% on Tuesday as crude oil prices stayed elevated after the drone attacks on Saudi Arabia’s oil facilities.
After opening at 71.83 a dollar as compared to previous close of 71.60, the rupee hit the day’s low of 71.98 before closing at 71.79 a dollar.
Elevated crude oil prices will weaken the country’s macroeconomic fundamentals like inflation and current account deficit as India imports over 80% of its requirements.
Oil price surge
“It remains to be seen if Monday’s [oil] price surge sustains. If it does, it could complicate the economy’s macroeconomic outlook, as sensitivity of external balances to oil prices is high,” said Radhika Rao, economist, DBS Bank.
DBS’s FX Strategist team maintains that emerging Asian currencies, most at the risk of higher oil prices, are from the countries with the biggest oil trade deficits.
These include the won, baht and rupee, while the ringgit will be the most resilient.
Crude oil benchmark, Brent Futures, surged by almost 20% to $71.95 per barrel (intra-day) on Monday, after twin drone attacks on Saturday wiped out more than half of Saudi Arabia’s crude supply.
However, Brent Futures on Tuesday saw some moderation and was trading at $68.07 per barrel, down 1.38% over the previous close.
