Rupee hits 80 mark versus dollar for first time as oil boils

The Indian rupee on Tuesday hit a psychologically significant level of 80 for the first time against the US dollar after crude oil surged on concerns about tighter supplies globally, with the currency weakening for the eighth consecutive session.

At 9.10 am, rupee was trading at 80.01 a dollar, down 0.03% from its previous close. It opened at 79.99 and touched a fresh record low of 80.02.

Overnight, crude oil surged over 5% after Saudi Arabia declined to commit to output increases following a visit by US president Joe Biden and a disruption along the Keystone pipeline cut shipments of some Canadian oil to US refiners, Bloomberg reported.

Investors are awaiting the US Federal Reserve’s meeting on July 26-27 to see how aggressive the central bank will be in raising interest rates to tackle searing inflation. The latest US data reinforce policymakers’ support for another 75 basis point hike, Bloomberg Economics says.

"Adverse global environment along with rising concerns on the external front are likely to weigh on the rupee going forward. We expect rupee to remain under pressure in the near term and trade in the range of 79.75-80.15 per dollar in the next fortnight, with the Fed policy action providing further clues," Bank of Baroda said in its latest note.

The local currency, already under pressure amid record high trade deficit coupled with persistent foreign portfolio investor outflows, has pressured the balance of payments. To counter the growing current account deficit (CAD), the central bank announced a slew of measures to strengthen the capital account focusing on debt inflows and external commercial borrowings. However, analysts feel these might not be enough to counter the burgeoning CAD.

"Recently, a sharp rise in trade deficit and a shift in the central bank's intervention strategy have accentuated the decline in rupee. The central bank has been intervening in the currency market via two legs – spot and buy sell swaps. This is helping preserve forex reserves and maintaining rupee liquidity. This, however, has led to a fall in the onshore forward premia, increasing rupee’s weakness. Amid such developments, we see dollar-rupee trading in the band of 79-80.5 (77.5-78.5 previously) in line with weakness in emerging market peers and recent changes in the forex strategy," said Elara Capital in a note to investors.