Rupee slipped 0.66 percent against the US dollar for the second straight week due to surging oil and commodity prices globally amid Russia-Ukraine tension.
The rupee slipped from 174.71 to 175.86 against the American currency in the interbank market last week after going 0.13 percent (23 paisas) down in the preceding week. Overall, the rupee has depreciated by Rs18.43 during the ongoing fiscal year 2021-22, while the local unit has appreciated by 65 paisas during the current year 2022.
On the other hand, the cautious market mood helps the dollar stay resilient globally. The US Dollar Index is posting modest gains a little below 96.00. Although a negative shift in risk sentiment could provide a boost to the dollar, another leg lower in US Treasury-bond yields on risk aversion could limit the currency’s gains. The big levels to watch on that side are 96.47 and 96.94, with a breach of the former level amounting to a fresh two-week-high.
It was a relatively quiet week for the US dollar in the international market, with the bid being pushed by threats of escalating tensions on the Ukrainian border. The prospects of greater conflict in Europe can keep flows coming into the currency. However, if Russia-Ukraine tensions de-escalate, the dollar’s weakness could come back that will ultimately benefit the rupee.
The rupee started last week on the back foot and remained under pressure for the first two days. It depreciated by 76 paisas (-0.43 percent) on Monday and 31 paisas (-0.18 percent) on Tuesday. However, the rupee remained firm for the next two days and gained 11 paisas (+0.06 percent) on Wednesday and 28 paisas (+0.16 percent) on Thursday, which eroded some of the losses of the previous two sessions. TLTP
The local currency came under renewed pressure on Friday, following the State Bank of Pakistan’s reports about a weekly decrease in foreign exchange reserves and a monthly decrease in foreign direct investment in the country, and shed 47 paisas (-0.27 percent). The foreign exchange reserves of the country dropped by $230 million (-0.96 percent) on a week-on-week basis to stand at $23.49 billion. During the last 10 weeks, foreign exchange reserves have dropped for nine week.
Similarly, the foreign direct investment dropped by 50 percent to $110 million in January 2022 as compared to December 2021 on a month-on-month basis. Likewise, on a year-on-year basis, FDI fell by 34.6 percent when compared to $168.3 million in January 2021.
The rupee is bearing the brunt of increasing trade deficit, surging import bill due to rise in oil prices, shrinking reserves, Russia-Ukraine conflict, and speculative elements. The oil import bill recorded a sharp increase in the first seven months (July-January) of 2021-22 from a year ago owing to rising prices on the international market and massive depreciation of the rupee. The oil import bill surged 107.35 percent to $11.7 billion in the first seven months of the current fiscal year. TLTP
