The rupee closed marginally lower at 72.69 against the dollar on Tuesday, extending its decline to a second straight session.
A surge in crude oil prices to new 2014 highs above $81 a barrel fuelled demand for the dollar while escalating tensions among investors on the US-China trade front pressurised the rupee.
Tuesday's decline meant two days of fresh depreciation in the rupee after the Reserve Bank of India (RBI) said the central bank and market regulator Sebi were watching market developments closely and would act if required.1.
The rupee touched 72.96 against the dollar at the day's lowest point.
It had closed at 72.63 against the greenback on Monday.2.
Brent crude - the international benchmark for crude oil - touched a four-year high of $82.20 a barrel, the highest price since November 2014.
Analysts see tightening of global oil supply in view of impending US sanctions on Iranian crude exports and reluctance top producers to hike output.3.
High crude oil prices tend to widen the current account deficit for India, which meets more than 80 per cent of its oil requirement through imports.4.
Demand for crude oil in the country is forecast to grow to 500 million tonnes per year by 2040 but persistent increases in oil prices might act as a dampener for the rate of growth, Reuters cited Partha Ghosh, an executive director at Indian Oil Corporation, as saying.
That would be equivalent to around 10 million barrels per day (bpd), up from about 4.7 million bpd in 2017.5.
"Brent is now trading at $82 per barrel as OPEC (Organization of the Petroleum Exporting Countries) is reluctant to boost output.
This may cause the rupee to underperform its current account surplus emerging market counterparts," said IFA Global, a forex advisory firm.6.
Cancellation of scheduled trade talks between the US and China has dampened risk sentiment, IFA Global added.7.US tariffs on $200 billion worth of Chinese goods and retaliatory taxes by Beijing on $60 billion worth of US products kicked in on Monday, unnerving global financial markets.8.
Outcome of the Federal Reserve's policy meeting will be closely watched by oil investors.9.
"Besides the oil prices, FOMC (Federal Open Market Committee) meet this week is also going to have a directional impact on the currency markets.
Even though the ongoing Sino-US Trade spat has weakened the dollarwe expect rupee to continue to be weak and trade between 72.50-73.20 levels due to the likely impact of oil at these elevated levels on our current account deficit," said Salil Datar, CEO and executive director, Essel Finance VKC Forex.10.
Meanwhile, cutting banks' cash reserve ratio (CRR) are among options that the RBI could look at to improve liquidity in the system, news agency Reuters cited a finance ministry official as saying.
CRR is the amount of funds commercial banks have to park with the central bank.(With agency inputs)