Dollar Vs Rupee Update: Shock due to big fall in Rupee, know why the dollar suddenly jumped so fast?

Business Desk- Dollar Vs Rupee Update: Indian Rupee opened much lower on Monday (May 11). It was trading 40 paise down at 94.88/$ against the US dollar, whereas on Friday (8 May) it had closed at 94.48/$.

This decline occurred amid a surge in crude oil prices, due to which expectations of an early resolution of the growing conflict between America and Iran were diminishing. Rekindled concerns about India’s import bill and inflation outlook.

The currency followed a sharp rise in global crude oil prices, with Brent crude rising more than 3% to nearly $104.50 a barrel. Markets reacted this way after US President Donald Trump described Iran’s response to the US proposal for peace talks as “unacceptable”, indicating that talks are still at a critical stage.

Iranian media reports indicated that Tehran was demanding an end to the confrontation, lifting of sanctions, compensation and recognition of its control of the Strait of Hormuz, a vital global route for oil shipping.

Traders said energy markets remained volatile due to uncertainty over the reopening of the strait. Following the surge in oil prices, India’s benchmark 10-year bond yield also rose to 7%, higher than its previous close of 6.98%.

Currency dealers noted that in recent weeks, the rupee has closely mirrored movements in crude oil prices, as India is heavily dependent on oil imports. Higher crude oil prices typically increase demand for dollars from oil marketing companies, putting downward pressure on the domestic currency.

Despite a weak start, bankers said the rupee has shown some strength in the last few sessions, mainly due to liquidation of long dollar positions in offshore markets. However, traders warned that the market mood remains highly sensitive to events related to the US-Iran conflict.

What will be the next level of rupee?

Anil Bhansali, head of treasury at Finrex Treasury Advisors, said authorities would probably try to prevent any move towards the $100/$100 level, as it is very sensitive politically and economically. However, some economists have warned that continued outflows of foreign funds and high oil prices could put pressure on the currency.