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Rupee dances to oil’s tune

Rupee dances to oil’s tune

Mon Dec 03 2018

 

Crude oil prices continue to influence the Indian rupee’s movement. WTI Crude oil prices continued to hover at lower levels — around $50 per barrel all through last week. This helped the rupee strengthen against the US dollar beyond the psychological level of 70. The currency made a high of 69.57, and closed on a strong note at 69.58 on Friday. But the outcome of the US-China meet over the weekend played spoilsport as currency markets opened on Monday.

 

The US and China agreed not to impose any additional tariffs for the next 90 days. This eased fears of a trade war between both the nations getting worse, and triggered a strong bounceback in oil prices.

 

WTI Crude jumped 4 per cent on Monday to trade at $53. As a result, the rupee reversed sharply lower by over one per cent on Monday, and declined below 70 again. The currency closed at 70.46 on Monday.

Events to watch

 

The coming week is packed with a series of important events. It will begin with the Reserve Bank of India’s (RBI) monetary policy announcement on Wednesday. The central bank is expected to keep rates unchanged. It will be followed by the global market’s most awaited event on Thursday – the meeting of the Organisation of Petroleum Exporting Countries is due on that day. The decision on whether to cut production will be key in setting the trend for crude oil prices. A further rise in oil prices could drag the rupee further lower over the short term.

Oil outlook

 

WTI Crude oil has bounced after testing the crucial long-term support level of $50 per barrel. If oil manages to sustain above $50 in the coming days, there is a strong likelihood of seeing a corrective rally to $57 in the coming weeks. Such an up-move in oil could restrict the rupee from strengthening further.

 

Rupee outlook

 

The sharp downward reversal on Monday is increasing the possibility of a short-term corrective fall in the Indian rupee. A key near-term resistance is at 70.15. As long as the rupee remains below this hurdle, a fall to 71 cannot be ruled out in the near term. A further break below 71 will then increase the likelihood of the rupee weakening towards 71.4 or even 71.60 over the short term.

 

The currency is likely to regain strength only if it breaks above 70 again. In such a scenario, it can appreciate towards 69.5 and 69 against the US dollar thereafter.

 

Source: https://www.thehindubusinessline.com

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