USD/INR: Rupee on the Edge Driven by Risk-off Flow

India’s Rupee posted negative returns against the greenback for the 3rd consecutive day. On the interbank market, the value of Rupee against the US dollar was driven by risk-off flow and depreciated by 11 paise settling up 0.16% at 71.96.

India’s domestic currency INR traded on Tuesday within a tight trading of 71.97 and 71.68 having a soft trading day. The signs of stabilization are still premature to proclaim a reverse of the risk-off move. The geopolitical fears will continue to drive the flow of money until Friday’s NFP report.

Elsewhere, Wall Street experts said that among emerging markets, India economy will suffer the most amid rising tensions between US and Iran. The rising price of Oil poses the biggest threat as India is a big oil importer. The growth challenges that Indian government need to tackle is another market theme that will keep the INR under pressure.

Meanwhile, crude oil price tumbled for two consecutive days from the multi month high. Oil prices dropped around 1% on Tuesday and finished the day at $62.63 per barrel. However, the escalations tensions in the Middle East have raised after Iran strikes US bases in Iraq. The main driver behind the surge in price was due to fears of Oil supply disruption amid the Middle East tensions. Crude oil prices touched a high of $65.62 per barrel a level not seen since 25 April.

The dollar index, which gauges the greenback’s strength against a basket of major currencies, settled up 0.40% at 97.01 on Tuesday, picking up on the risk-off sentiment.

Elsewhere, foreign institutional investors (FIIS) were net sellers of shares in the local equity market worth Rs -682.23 crore; according to the National Stock Exchange of India data published at the end of Tuesday’s trading session. On the other hand, Domestic institutional investors were net buyers of equities worth Rs 311.19 crore.

The domestic benchmark equity index NIFTY 50 recovered some of early losses and settled at 12,052.95 by the end of Tuesday. During early Asia trading hours NIFTY 50 was seen gaping lower at 11,939.10.

The Indian 10-year government bond yield was seen quoted at 6.56% in morning trade compared with its previous close of 6.57%.

USD/INR was edging up -0.05% to 71.92 in late Asian session on Wednesday.