Rupee May Face Challenges This Week Due to Venezuela Crisis and Potential US Actions
The Impact of the Venezuela Crisis on the Rupee
Mumbai: The escalating geopolitical tensions driven by recent US military interventions in Venezuela are likely to keep the Indian rupee under pressure throughout the week, according to market experts. The uncertainty surrounding oil-exporting Venezuela and the possibility of further US actions could lead to volatility in oil prices, which in turn could significantly impact the rupee.
Current State of the Rupee
– Recent Performance: The Indian rupee has faced declines for two consecutive weeks, closing last week below the crucial ₹90 per dollar mark, primarily due to persistent demand for dollars during the year-end.
– Market Volatility: As traders interpret the ongoing geopolitical tensions, especially in emerging markets like India, they should expect heightened currency market volatility.
Oil Dependence and Broader Pressures
– Venezuela’s Oil Market Share: Despite Venezuela boasting one of the world’s largest oil reserves, its contribution to the international market is relatively small, with India importing less than 1% of its oil from the country.
– Geopolitical Risks: More pressing than the direct oil price impact are the escalating global tensions and potential retaliations from other powers, which could increase pressure on emerging market currencies, including the rupee.
Outlook and Expert Insights
– Weakening Sentiment: Alok Singh, head of treasury at CSB Bank, emphasized that the rupee is already in a vulnerable position, and global volatility could exacerbate the situation.
– RBI’s Role: The Reserve Bank of India (RBI) announced measures to support the rupee; however, the next intervention isn’t scheduled until January 13. Bankers predict the rupee may weaken to between ₹90.50 and ₹91 per dollar until then.
– Future Measures: On January 13, the RBI plans to conduct a $10 billion three-year dollar-rupee buy/sell swap. This will involve banks selling dollars to the RBI in exchange for rupees, with an understanding to swap them back at a higher price after three years.
Historical Context and Current Challenges
– In 2025, the rupee fell nearly 5% against the US dollar, marking its weakest annual performance since 2022, reaching an all-time low of ₹91.14 before recovering slightly.
– Ongoing challenges include:
– Persistent outflows from foreign institutional investors.
– Weak exports exacerbating trade deficits.
– Global economic uncertainty fueled by increased tariffs from the US.
Conclusion: Navigating Uncertainty Ahead
As geopolitical dynamics evolve, the rupee’s prospects remain tenuous. With external factors such as the Venezuela crisis and potential US actions capable of stirring market volatility, stakeholders should remain vigilant. The Indian rupee’s direction will largely depend on the Reserve Bank’s forthcoming strategies and the overarching global landscape, presenting a challenging week ahead for India’s currency.