Rupee weakens for 8th straight session, new low at 96.38 against US dollar on May 19; key factors here

Investing data showed that the Indian rupee has weakened for the eighth straight trading session, as the currency has been on a downtrend against the US dollar since May 7.

After dropping to another fresh record low on Tuesday’s market session, the Indian rupee was trading 0.12% weaker at 96.31 against the US greenback as of 9:20 am (IST), compared to 96.19 at the previous market close, according to the USD/INR exchange data.

Key factors impacting Indian rupee

The Indian rupee was witnessing a sustained fall, weakening to a new record low every day, as the domestic currency was facing macroeconomic challenges amid weak global cues from West Asia, an elevated oil and dollar rate, along with a subdued demand for the local currency.

Although the US dollar prices were trading lower than before, the global benchmark currency still remains elevated, which also added further pressure on the Indian rupee amid the geopolitical crisis.

The Bloomberg US dollar spot index (DYX) data showed that the greenback was trading 0.09% lower at 99.105 as of 12:03 am (ET), in the United States on May 19, compared with the previous currency market close levels.

Indian being a major importer of crude oil in the world, the elevated oil prices above $109 per barrel (bbl) have kept the tensions high in the market, increasing concerns of oil supply in the nation.

In situations of uncertainty, investors and forex traders tend to pull their emerging market currency bets as they shift their investments into safe-haven assets like the US dollar, gold, and government treasuries, moving away from currencies like the Indian rupee.

Apart from the investors' move, macroeconomic cues like India’s merchandise trade deficit expanded to $28.38 billion in April due to the country importing crude oil, in turn pushing the overall imports to a six-month high, as per a Reuters report.

India imports 80% of its crude oil and 60% of its natural gas needs from foreign nations, hence a majority of its imports from the West Asian Gulf nations have been impacted due to the US-Iran conflict.

Adding to the uncertainty factor, the US President Donald Trump called off a military attack on Iran, but also instructed its US forces that the country is positioned to execute a full assault, if needed.

To control the volatility of the Indian rupee, the government, with the help of its central bank, the RBI, has taken certain measures to cap the net open positions of the rupee among banks to $100 million, curbs on gold imports, and restrictions to further reduce speculative trading by restricting banks from offering rupee non-deliverable forwards (NDF).

What’s the challenge for rupee?

According to a PTI report, the forex traders were reacting to the vulnerable rupee rate, the rise in crude oil prices and the Strait of Hormuz closure.

“The market’s biggest challenge right now is not just direction – it's confidence. Until there is visible cooling in global tensions and stability in foreign flows, the rupee may continue trading under pressure with volatility staying elevated,” Amit Pabari, the MD of CR Forex Advisors, told the news agency PTI.

Market experts widely expect that the Indian rupee is expected to further weaken in the market, with no signs of relief from West Asia or other global risk factors.