Mumbai: The rupee rose to the highest level in almost three months as a drop in crude oil prices reduced demand for dollars from refiners.
The rupee was the second-best performer among the 10 most-traded currencies in Asia outside Japan as oil traded near the lowest level in three months in New York. The local currency also advanced on speculation gains in local stocks will encourage overseas investors to increase their holdings of the nation’s assets.
“It’s a big relief for refiners as they weren’t expecting oil prices to slide this way in less than a month from their peak,” said Ravindra Babu, a currency trader at state-owned Andhra Bank in Mumbai. “Investors are now pricing further gains in the rupee on expectations that oil will fall more.”
The rupee rose 0.4% to 42.0725 per dollar at the 5pm close in Mumbai, the highest since 12 May, according to data compiled by Bloomberg. It earlier advanced past 42 for the first time in two weeks to touch 41.94. The currency may reach 41.80 in the coming days, Babu said.
Crude oil has fallen about 19% from its all-time high of $147.27 a barrel reached on 11 July on the New York Mercantile Exchange. It fell to $118 on Tuesday, the least since 5 May.
India, which depends on imports to meet about 70% of its annual energy needs, paid an average $8 billion a month this year for oil from abroad, compared with $5.5 billion in 2007, government data show.
The rupee strengthened for a second day after the Bombay Stock Exchange’s Sensex index advanced to the highest since 19 June.
“Flows should increase in the region as the overall investment sentiment is changing for the better,” Babu said. “Improved dollar supplies should support the rupee.”
Goldman Sachs Group Inc. recommended investors buy the rupee and sell a basket of currencies such as the dollar, the yen, the euro and the Australian dollar, due to the decline in oil prices.