India’s rupee fell to within 0.3 percent of a record low on concern geopolitical tensions will push up oil prices, boosting import costs at a time when capital inflows are slowing due to a possible paring of U.S. stimulus.
The rupee weakened 1.6 percent to 65.36 per dollar as of 9:29 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg, near the all-time low of 65.56 touched on Aug. 22. The currency has lost 3.1 percent in two days and 9.1 percent this quarter.
Brent crude rose 0.4 percent today after U.S. Secretary of State John Kerry said yesterday President Barack Obama will hold Syria accountable for using chemical weapons against its people, fanning concern unrest in the region may disrupt supplies of the fuel. India imports about 80 percent of its oil and is the world’s largest consumer of gold, the price of which has advanced 13 percent this quarter.
“The rupee is likely to continue to be under pressure given rising gold and oil prices,” Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong, said in an e-mail interview. “Any major dip in the dollar-rupee exchange rate should be seen as a buying opportunity for the pair given lack of sufficient measures that would turn around India’s weak fundamentals.”
Global funds have cut holdings of Indian debt by $10.3 billion since May 22, when the Federal Reserve flagged a potential reduction of bond purchases. Local gold prices have surged 24 percent since the end of June as the rupee’s plunge threatens to stoke inflation, boosting the lure of the metal as a store of value.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 33 basis points, or 0.33 percentage point, to 16.49 percent.
Three-month onshore rupee forwards fell 1.4 percent to 65.89 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts dropped 1.3 percent to 67.15. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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