The Indian rupee hit a record closing low of 95.31 against the US dollar on Monday, driven by surging crude oil prices after US President Donald Trump dismissed Iran’s response to a peace proposal. The domestic currency fell 83 paise from its previous close, marking its steepest single-day decline in over a month.
Crude oil prices climbed 2.19% to $103.5 per barrel on Monday amid renewed uncertainties around US-Iran war after peace talks stalled again.
Most Asian currencies declined on Monday amid stalled peace negotiations. The Indian rupee was the worst-performing Asian currency, followed by the Phillipine pesso and the South Korean won. So far in the calendar year, the rupee has fallen over 6%, with major depreciation happening with the onset of the war in March.
“Market has realised that a ceasefire may not work for a longer period. This has triggered overwhelmingly strong risk-averse sentiment,” said a dealer at a public sector bank.
Prime Minister Narendra Modi’s comments also weighed on the market, said dealers. On Sunday, Modi urged the nation to adopt a cautious approach amid the war crisis. The PM called for a temporary reduction in foreign spending, holding off on gold purchases, and cutting fuel use, among others.
“Trump’s rejection of Iran’s terms to end the war, which drove up oil prices and the dollar index, has pressured all Asian currencies. Additionally, sustained oil buying intensified rupee weakening. Markets interpreted Modi’s comments as signaling an economic slowdown, adding further pressure today (Monday),” said Anil Kumar Bhansali, treasury head, Finrex Treasury Advisors LLP.
He added that there was likely some panic gold-buying as the market is fearing that some sort of control will come on gold imports.
Bhansali noted that the rupee could breach 96, assuming the war persists and less support from the Reserve Bank of India (RBI).