The Indian rupee fell below the 74 level compared to the dollar for a brief period today as brent crude oil price inched toward the $82 per barrel mark again on rising tensions between oil-rich Saudi Arabia and the US after dissident scribe Jamal Khashoggi was feared killed at the kingdom's consulate in Turkey.
The currency opened at 73.80, down 23 paise from its previous close of 73.57 compared to the American dollar. Currently, it was trading at 73.82 level to the dollar.
Brent crude oil price was trading at $81.26, up 1.02% from its previous close.
Brent crude oil prices which came under pressure last week on lowering of global growth forecast by IMF rose to $81.92 per barrel putting pressure on the home currency.
Oil prices rose amid uncertainty of events after US President Donald Trump has vowed "severe punishment" if oil-rich Saudi Arabia was behind the disappearance of its dissident journalist Jamal Khashoggi who is feared killed at the kingdom's consulate in Turkey.
His remarks came amid mounting pressure as reports coming out of Turkey suggest that Khashoggi was brutally killed by Saudi officials inside their consulate in Istanbul.
A rise in brent crude prices have adversely affected the rupee. The brent crude oil price has risen 30.23% from 66.57 level since the beginning of this year.
It touched an all-time high level of 86.74 level recently.
India is 81 per cent dependent on imports to meet its oil needs and is the third-largest importer of crude after US and China.
Since payment of crude oil prices is done in dollars, a higher crude rate leads to more amount of rupee being converted to dollar, thereby strengthening the US currency.
FII outflows
FII outflows have affected the home currency. FIIs have withdrawn Rs 29,249 crore from the Indian market this month, the most since May 2018.
They pulled out investment worth Rs 2663.77 crore from Indian capital markets.
Overseas investors pulled out a massive Rs 21,034 crore from the capital markets in September, making it the steepest outflow in four months, on widening current account deficit amid global trade tensions.
The latest withdrawal comes following a net infusion of close to Rs 5,200 crore in the capital markets (both equity and debt) last month and Rs 2,300 crore in July.
Outflow of funds from the Indian market leads to a fall in the value of rupee since there is more demand for dollars from foreign investors after exiting the Indian market.
Current account deficit
A burgeoning current account deficit (CAD) has become a big worry for the home currency.
CAD in the first quarter of this fiscal widened to $15.8 billion, which is around 2.4 per cent of the country's Gross Domestic Product (GDP), as compared with $15 billion in the corresponding quarter a year before.
In the January-March quarter, the trade shortfall stood at 1.9% of the GDP.
A rise in the current account deficit leads to depreciation in the value of rupee since more quantity of local currency needs to be utilised for payment of higher imports