Rupee Extends Losses On A Stronger Dollar And Widening Trade Deficit

Widening trade deficit hurts the rupee

The rupee extended its losses on Wednesday as the dollar strengthened after Federal Reserve Governor Lael Brainard said the central bank needs to act and take inflation head-on.

In addition, domestic equities weakness, a rise in crude oil prices and a widening trade deficit also weighed on the rupee.

India’s trade deficit touched $18.51 billion in March, with merchandise exports up nearly 20 per cent to $42.22 billion and imports 24 per cent higher at $60.74 billion.

That does not yet fully reflect the fallout from the Ukraine war and the distortion of the already disrupted global supply chains.

Reuters quoted the rupee at 76.14 against the dollar, and the PTI reported the currency slipped to settle at 76.18 on Wednesday after falling 24 paise to end at 76.15 in the previous session.

“The rupee continued to lose ground against the dollar since the start of the week’s trade. Fed Governor Lael Brainard reiterated the need for the central bank to ‘expeditiously’ take on decades-high inflation,” noted the Currency Desk of Emkay Global Financial Services .

“Reports suggested that Russian oil and gas condensate production fell to 2020 lows; this triggered a strong bounce in Brent crude oil prices and hurt the rupee. Moving ahead, the rupee needs to strengthen below 75.80 to see a re-test of 75.40 areas again ; else the weakness will extend towards 76.45 levels,” the note added.

Crude markets have gyrated wildly in recent weeks, with the volatility the most since June 2020.

While weak economic data and demand concerns from China’s COVID restrictions are likely to keep a lid on oil gains, supply concerns will put a floor on prices as Russia said peace talks with Ukraine had hit a dead end.

Reuters reported that because of sanctions, Russian oil and gas condensate production fell on Monday to its lowest since July 2020.

What has not helped the rupee also was that domestic equity indices on Wednesday finished the holiday-shortened week on a lower note, extending their fall for the third straight session.

The latest stock exchange data also showed foreign institutional investors sold Indian shares worth Rs 3,128.39 crore on Tuesday.

Source

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