Rupee Plummets 29 Paise At 82.68 Against US Dollar On Surge In Crude Oil Prices

The rise in crude oil prices as a result of Saudi Arabia's voluntary output reduction caused the rupee to conclude the day 29 paise weaker at 82.68 against the US dollar on Monday. The rupee dropped 29 paise at the interbank foreign exchange from its Friday close of 82.39 to end the day at 82.68 (provisional) versus the dollar. The dollar index, which measures how strong the dollar is relative to a collection of six different currencies, climbed 0.24% to 104.26.

After Saudi Arabia opted to lower its oil output by an additional 1 million barrels per day (bpd) starting in July, crude oil prices rose by about 2% on Monday, with the global benchmark Brent oil leaping beyond $77 per barrel. After reaching the day's high of $78.73, Brent oil futures climbed 1.73% to $77.45 a barrel, while US West Texas Intermediate crude surged 1.87% to $73.08 after reaching an intraday high of $75.06.

Experts claim that Indian Rupee depreciated on a strong Dollar and surge in crude oil prices. Other than Saudi Arabia, which announced it would decrease its output from around 10 million bpd in May to 9 million bpd in July, experts claim that US lifting its debt-ceiling bill and upbeat Chinese data may support Rupee at lower levels amid vigilant market ahead of RBI's monetary policy later this week.

Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas said "USDINR CMP- 82.61 (spot) Indian Rupee depreciated on a strong Dollar and surge in crude oil prices. FIIs have remained as net sellers in the past two sessions. However, upbeat economic data from India and positive domestic markets cushioned the downside. India's Services PMI expanded at 61.2 in May vs forecast of 60. However, it slipped below the April reading of 62. US Dollar strengthened on robust jobs data, raising expectations of a rate hike by the US Federal Reserve in its June FOMC. US non-farm payrolls surprised the markets and added 339,000 jobs in May 2023 vs 294,000 jobs in April 2023 and expectations of 193,00 jobs. However, average hourly earnings increased by 0.3% in May 2023, at a slower pace compared to 0.4% in April 2023. Unemployment rate rose to 3.7% in May 2023 as compared to 3.4% in April 2023."

"We expect Rupee to trade with a negative bias in the near term on surge in the US Dollar and overnight surge in crude oil prices due to a voluntary output cut by Saudi Arabia. However, rise in risk appetite in global markets amid US lifting its debt-ceiling bill and upbeat Chinese data may support Rupee at lower levels. Positive PMI data from India may also support Rupee. Traders may remain cautious ahead of US ISM services PMI and factory orders. Market participants may remain vigilant ahead of RBI's monetary policy later this week. RBI is expected to leave the repo rate unchanged at 6.5%. We expect USDINR spot to trade in between 82.25 to 83 in the near term," Anuj Choudhary further added.

Commenting on the outlook of Crude Oil after the development of Saudi Arabia, Mohammed Imran, Research Analyst at Sharekhan by BNP Paribas said "The crude oil market is further squeezed with OPEC decision to extend the voluntary production cuts from end 2023 to December 2024. In addition to this Saudi Arabia decided that its output would drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the kingdom's biggest reduction in years. The collective production cuts from OPEC+ from July onwards would stand around 4.6 million barrels per day which is around 4.5% of global output and is big enough to bring the market balance into deficit by the end of July.

"On the other hand, US energy producers are also pinched down by the low crude oil prices and that's reflected in the falling rigs counts. The number of operating oil rigs slumped by 15 to 555 last week, their lowest since April 2022. The US labor market posted robust growth for May, and indictive of strong momentum in consumer spending ahead. We remain bullish on crude oil with WTI may test the resistance of $78 this week, but not before making a sharp decline towards the support of $69. We advise traders to buy the dip for target of $78," Mohammed Imran further added.

On Monday, June 5, the Sensex and the Nifty both ended the day in the green. The Nifty concluded the day at 18,593.85, up 60 points, or 0.32 percent, while the Sensex concluded the day up 240 points, or 0.38 percent, at 62,787.47.