The rupee fell sharply against the dollar on Tuesday, driven by higher crude prices in international energy markets, and as investors evaluated China’s decision to ease the pandemic restrictions even as the number of Covid cases increased.

Bloomberg showed the rupee was last changing hands at 82.8550 per dollar, compared to its previous close of 82.6512 on Monday.

PTI reported that the domestic currency fell 20 paise to close provisionally at 82.85 against the US dollar. 

“As we approach the year-end and the month-end, with no inflows today due to the US holiday yesterday, the USDINR pair was well bid by oil companies, taking it to a high of 82.83,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

“Markets continue to remain steady as the holiday season diluted flows and kept volumes lower. The rupee hit an opening high of 82.70 before weakening to 82.82 as oil importers continued to buy the US currency, with no inflows to counter those dollar bids,” he added.

Following Beijing’s removal of the requirement for arriving travellers to undergo quarantine, Asian currencies were mixed, with the Chinese yuan trading flat.

Equities rejoiced on that news, including domestic stocks, as stock markets soared in the region.

However, China’s healthcare system was still burdened by the rising number of Covid infections.

With trading being light in the holiday season, the dollar index was unchanged.

“In line with its seasonal trend, December has been a soft month for the greenback,” ING FX Strategist Francesco Pesole told Reuters. “It’s worth remembering that the dollar rose in each of the past four years in January. Our view for early 2023 is still one of dollar recovery.”

Oil prices, though, were rising toward $85 per barrel. Higher crude weighs on the domestic currency and the current account as the country imports over three-fourths of its oil needs.

On Tuesday, oil reached three-week highs as prospects for increased fuel demand were stoked by China’s latest relaxation of COVID-19 limits and concerns over how winter storms in the United States are affecting energy supply continued to bolster prices.

The rupee has struggled to advance despite a weakening dollar since November, making it the worst-performing Asian currency this year. The market has a tremendous demand for cash dollars, according to traders.

“The rupee should be protected at 83, or we risk seeing sharp falls” like over the past couple of months, Sajal Gupta, Head of Forex and Rates at Edelweiss Financial Securities, told Reuters.

“The currency trading near record lows is not a comfort,” said the Head of Forex and Rates, adding a sustained decline in line with other currencies would be manageable rather than “extreme moves.”

Over the previous two weeks, the rupee has fluctuated within a small range and found support between 82.8 and 82.90. In October, it fell to a record low of 83.29.