Mumbai: The Indian spot rupee tumbled over 100 paise ending at 75.66 to a dollar on Thursday compared to its previous close of 74.56/57 as markets woke up to the news of Russian invasion of Ukraine. Brent crude moved past 105/bbl, a seven year high as sanctions were imposed on Russian companies like the Roseneft.
With the US and its allies expected to impose new stricter sanctions on Moscow than have been so far, global supplies of crude oil may be disrupted, given that Russia is a large exporter of the commodity. Equity markets globally were sold off and the domestic equity markets suffered big losses. Both the benchmarks ended at 4.7 per cent lower.
The US Dollar and gold are being seen as safe haven buying in the wake of the Russian invasion of Ukraine. As a result, gold and silver prices rose by an average 3 per cent, most currencies were down in the red against the US dollar.
“Tensions will remain high for the next three to four sessions after which markets will stabilise. This is because historically the pain caused by a war like situation has been short lived and markets have bounced back after an initial knee jerk reaction. Infact, markets have already started discounting the negative news about the repercussion of Russia invading Ukraine and the likely result of US and its allies imposing severe sanctions on Russia. The markets will be keenly watching the fresh set of sanctions to be imposed by US and its allies on Russia. The increase in crude oil prices seems to be a major fallout of this crisis,” explained Ritesh Bhansali, vice-president Mecklai Financial Services.
“The rupee is likely to remain under pressure for the next couple of weeks and then stablise. It may test 76.20/30 levels in the near term and settle in the range of 75 to 76 range. Historically March has always been a good month for the rupee and we expect it to follow this time around as well on the back of LIC IPO and a couple of more IPOs as well. We expect gold and dollar to remain strong in the near term in the light of the risk off scenario witnessed by the market,” added
Bhansali.
Navneet Damani, senior vice-president, commodity and currency research at Motilal Oswal Financial Services said, “Fundamentals right now are slightly not in favour for the rupee because we are seeing inflation-related concerns on higher crude prices, geopolitical tensions also leading to safe haven buying for the dollar and all this is keeping the rupee under pressure. Over the last few years, RBI has
managed to build a war chest with sufficient FX reserves and has been using them to curtail volatility for the rupee. But looking at the current scenario it seems that geopolitical tensions is influencing the currency than anything else. We expect the rupee to remain under pressure in the short term and could be facing to levels of 75.80-76.2 and resistance for the rupee could be capped at 74.20. If the current situation further escalates, investors will cling on to safe haven
asset or sit on cash i.e. Dollar.”
Russia is the key supplier of crude oil and natural gas to the global markets. Russia, which is the second-largest producer of crude oil, sells a significant portion to European countries. Nearly one-third of Russian natural gas is being supplied to the European markets. While commodities have edged up on supply risks and hedge against inflation, the US dollar index and Treasury bond have benefitted from safe haven buying. The US dollar index gained over 0.5 per cent to trade near 96.90 level, the highest since late January. The US 10-year bond yield dropped from its Wednesday’s high of near 2 per cent to trade near 1.88 per cent. Doubts are emerging if the Fed will hike its Fed funds rate by 50 basis points in their March meeting in the wake of the ongoing hostilities in Ukraine. Meanwhile, Russian Ruble slumped to record low level against the US dollar.
