The rupiah slipped 0.66% against the US dollar for the second week in a row as global oil and commodity prices soared amid Russian-Ukrainian tension.
The rupee slipped from 174.71 to 175.86 against the US currency in the interbank market last week after falling 0.13% (23 paisa) the previous week. Overall, the rupee has depreciated by Rs18.43 in the current financial year 2021-22, while the local unit has appreciated by 65 paisa in the current year 2022.
On the other hand, the cautious mood in the market is helping the dollar remain resilient globally. The US Dollar Index is posting modest gains just below 96.00. While a negative shift in risk sentiment could give the dollar a boost, another leg lower in US Treasury yields due to risk aversion could limit the currency’s gains. The big levels to watch on this side are 96.47 and 96.94, with a break of the old level equating to a new 2-week high.
It was a relatively calm week for the US dollar in the international market, as supply was pushed by threats of escalating tensions on the Ukrainian border. Prospects of greater conflict in Europe may continue to fuel the currency. However, if the Russian-Ukrainian tensions ease, the weakness of the dollar could return, which will ultimately benefit the rupee.
The rupiah started last week on the back foot and remained under pressure for the first two days. It depreciated 76 paisa (-0.43%) on Monday and 31 paisa (-0.18%) on Tuesday. However, the rupee remained firm for the next two days and gained 11 paisa (+0.06%) on Wednesday and 28 paisa (+0.16%) on Thursday, which eroded some of the losses from the previous two sessions.
The local currency came under further pressure on Friday, following reports from the State Bank of Pakistan of a weekly drop in foreign exchange reserves and a monthly decline in foreign direct investment in the country, and lost 47 paisa (- 0.27%). The country’s foreign exchange reserves fell by 230 million dollars (-0.96%) over one week to settle at 23.49 billion dollars. Over the past 10 weeks, foreign exchange reserves have fallen for nine weeks.
Similarly, foreign direct investment fell 50% to $110 million in January 2022 compared to December 2021 on a monthly basis. Similarly, on an annual basis, FDI fell by 34.6% from $168.3 million in January 2021.
The rupiah bears the brunt of rising trade deficit, rising import bill due to rising oil prices, dwindling reserves, Russian-Ukrainian conflict and speculative elements. The oil import bill recorded a sharp increase in the first seven months (July-January) of 2021-22 compared to a year ago due to higher prices in the international market and massive depreciation rupee. The oil import bill jumped 107.35% to $11.7 billion in the first seven months of the current fiscal year.