The Rupee is seeing high volatility against the US dollar in early trading

The rupee witnessed high volatility in early trade on Wednesday as support from falling crude oil prices was offset by uncertainty over the India-US trade deal and continued foreign fund outflows. Forex traders said the main cause of the rupee’s weakness in December was persistent FPI selling in both the equity and debt markets, with foreign investors repeatedly selling multi-billion dollars worth of Indian assets on a daily basis in recent months, with the selling intensifying over the past two months.

However, as Brent crude oil prices hovered around a recent multi-year low of USD 59 per barrel, the local unit found support at lower levels.At the interbank forex market, the rupee opened at 91.05 against the US dollar, down 12 paise from the previous close.

However, the domestic unit witnessed a sharp recovery and appreciated 97 paise to hit an early high of 89.96 against the US currency and was trading at 90.18 against the US dollar at 9.46 am.

On Tuesday, the rupee fell below 91 per dollar and hit a low of 91.14. Ultimately, the rate came to 90.93 against the American currency.

Meanwhile, the dollar index, which measures the greenback’s strength against a basket of six currencies, traded 0.17 percent higher at 98.31. Brent crude, the global oil benchmark, traded at USD59.54 per barrel in futures trading as record supply from non-OPEC companies, weak Chinese data and optimism over a ceasefire in Ukraine were the main reasons for the current decline, traders said.

Meanwhile, Minister of State for Finance Pankaj Chaudhary informed Parliament on Tuesday that “during the current fiscal year, the depreciation of the INR has been influenced by the increase in the trade deficit and the likely outlook arising from the ongoing developments in India’s trade deal with the US, amid relatively weak capital account support.”

“The depreciation of the currency is likely to increase the competitiveness of exports, which in turn will have a positive impact on the economy. On the other hand, the depreciation may increase the prices of imported goods. However, the overall impact of the exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market,” he said.

In the domestic equity market, the 30-share benchmark Sensex was trading 146.09 points higher at 84,825.95, while the Nifty rose 62.05 points to 25,922.15.

Foreign institutional investors sold shares worth Rs 2,381.92 crore on Tuesday, according to stock market data.

According to Anil Kumar Bhansali, head of the finance ministry and executive director of Finrex Treasury Advisors LLP, the rupee could see a slow and steady move towards 92 in the coming days, with no signs of a trade deal between India and the US, which has also been a reason for the fall in stocks.