Oil prices, trade tensions to exert pressure on rupee: Experts

The Indian rupee is likely to remain under pressure in the coming week as rising global trade protectionism, elevated crude oil prices and continued foreign fund outflows weigh on the currency, market experts said on Saturday.

However, stronger-than-expected economic growth data released on Friday could provide some support to the rupee and prevent a steep fall in the early part of the week.

Anindya Banerjee, Deputy Vice President for Currency and Interest Rates at Kotak Securities, said the dollar-rupee exchange rate was being influenced by several factors, including emerging-market turbulence, rising oil prices, the global trade conflict and election-related risks in India.

"RBI intervention may continue to support rupee as it trades closer to 71 level," Banerjee told IANS.

The Reserve Bank of India regularly intervenes in the foreign exchange market through authorised intermediaries, buying or selling US dollars when necessary to manage excessive volatility in the rupee.

Banerjee said India's strong economic growth outlook should provide some protection against a sharp depreciation of the currency. He expects the rupee to trade in the range of 70 to 71.50 per US dollar in the spot market during the coming week.

Sajal Gupta, Head of Forex and Rates at Edelweiss Securities, said higher crude prices could put additional pressure on the rupee, particularly as US sanctions on Iran force Indian oil refiners to source crude from alternative suppliers. Such purchases may also increase the need for upfront dollar payments.

Gupta noted that September has historically been a relatively favourable month for the rupee, but said the currency would need to move below the key 70.20 level to sustain any near-term gains.

Another concern is the possibility of continued foreign investment outflows from Indian equity and debt markets. Provisional stock exchange data showed that foreign institutional investors sold Indian shares worth Rs 579.20 crore during the past week.

The rupee has already come under significant pressure in recent weeks amid global trade tensions, geopolitical uncertainty and capital outflows. On Friday, it fell past the 71-per-dollar mark for the first time, setting a fresh record low in intra-day trading and surpassing its previous low of 70.85.

The currency eventually ended the session at around 70.99-71 per US dollar, weakening by 25 paise from its previous close of 70.74.

Rushabh Maru, Research Analyst at Anand Rathi Shares and Stock Brokers, said the strong GDP numbers could offer some temporary relief to the domestic currency. However, he cautioned that any appreciation could be short-lived as importers may use stronger levels to cover their unhedged dollar exposure.

Exporters, meanwhile, may hold back from selling their dollar earnings amid expectations that the rupee could weaken further towards the 72-73 range.

For the rupee, the outlook therefore remains dependent on a combination of domestic growth, crude oil prices, foreign capital flows, global trade tensions and possible intervention by the RBI.