Rupee starts new year rebound on weak oil prices, dollar selling

Dubai - The BSE benchmark Sensex turned choppy after opening higher in early trade.

As predicted by currency experts, the Indian rupee started the new year on a positive note and appreciated to 69.34 against the US dollar (Dh18.87 against the dirham) on Tuesday, signalling a sustained rebound given oil prices remain at the current low levels.
Increased selling of the dollar by exporters and banks also supported the rupee, the worst-performing Asian currency in 2018 that lost more than one-tenth of its value. In October 2018, the rupee hit a lifetime low of 74.49 (Dh20.41 against the dirham) when global crude prices rallied. Aggravating the rupee setback was a strengthening greenback and a relentless foreign fund outflow of up to $12 billion from India.
However, some analysts are quite sceptic about the rupee's long-term fortune, and believe that the currency is likely to plunge to 71.45 to a dollar by March. Some even forecast the rupee to plummet to as much as 75 per dollar, or 20.45 per dirham in 2019.
On Tuesday, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.02 per cent at 96.15.
Meanwhile, the BSE benchmark Sensex turned choppy after opening higher in early trade Tuesday amid sustained capital outflows by foreign funds and surging global crude oil prices. The 30-share index gained over 180 points higher from the previous close after a sharp recovery in the final hour of the trade on Tuesday, thereby regaining the 36,000 mark. It settled 186.24 points, or 0.52 per cent, higher at 36,254.57 after touching an intraday high of 36,284.04 and a low of 35,888.62 points. The Nifty50 closed at 10,910.10, up 47.55 points, or 0.44 per cent.
Even though the 2018 gains were marginal, both the Sensex and Nifty50 emerged among the best in attaining the highest growth rates globally.
Forex experts expect the rupee to bounce back in 2019 on the back of several favourable factors, including the drop in oil prices that helps reverse the widening current account deficit. Thanks to falling crude prices, India's current account deficit is expected to be slightly lower at 2.5 per cent of gross domestic product for 2019, as against earlier forecast of 2.9 per cent.
According to Nomura Securities, a net importer like India benefits greatly when crude prices plummet more than 30 per cent from a year before. Analysts said the price of crude oil always is a key deciding factor of rupee's fate. Other factors favouring the prospects of a strong rupee is India's robust economic growth, a key factor that encourages foreign investors to put money into Indian assets.
- issacjohn@khaleejtimes.com