The Indian rupee has slipped over the past two days after holding firm for a few weeks. It breached the 96 per dollar mark in early trade, reaching its lowest level in over 7 weeks, as renewed tension between the US and Iran led to almost a 10% spike in oil prices from last week’s levels, adding pressure on the domestic currency.
The domestic currency hit an intraday low of 96.23 per dollar, reaching its weakest level since May 22, before ending Tuesday’s trade at 96.20, down 0.6% from its previous close.
Brent crude crosses $85 per barrel mark
The global benchmark Brent was trading above the $85 per barrel mark, while the US contract for oil, West Texas Intermediate (WTI), was quoted around the $80 per barrel level. Over the past week, crude prices have gained more than 10% as tensions between Washington and Tehran have revived supply disruption concerns through the Strait of Hormuz, mounting inflationary pressures.
US President Donald Trump reinstated a blockade on Iranian vessels transiting through the passage and proposed a 20% reimbursement charge on cargoes passing through the strategic waterway in exchange for US security, describing Washington as the “guardian” of the Strait.
Tehran vowed retaliation, adding that it will remain in charge of the chokepoint. The rise in oil prices weighs negatively on the Indian rupee as the country is a net oil importer.
Dollar Index climbs over 101
The surge in oil prices boosted safe-haven demand for the greenback as the dollar index held around the 101.2 mark. The index, which gauges the strength of the dollar against a basket of six major currencies, though down on the day, posted strong gains in the previous session.
“Treasury yields have risen as markets price in the possibility that the US Federal Reserve may need to keep monetary policy tighter if energy-driven inflation persists,” said Anil Kumar Bhansali, head of treasury and Executive Director at Finrex Treasury Advisors LLP.
He added that demand for the US dollar increased as investors moved toward safe-haven assets amid heightened geopolitical uncertainty, putting pressure on most Asian currencies.
SBI Mutual Fund IPO expected to bring in inflows
The highly anticipated SBI Mutual Fund IPO, which is this year’s biggest IPO so far, has opened today. Traders expect that the issue would bring in some amount of flows.
“SBI Mutual Fund IPO has opened today, and we expect some amount of flows to come into the same,” Bhansali said.
Equity markets end in red
Equity markets also faced selling pressure, ending Tuesday’s trade in red as the Sensex fell 561.46 points, or 0.72%, to close at 77,054.94, while the Nifty declined 165.60 points, or 0.68%, to settle at 24,045.40.
As per the provisional data on the NSE for July 13, FIIs were net sellers of domestic equities worth Rs 3,395.80 crore.
Outlook for rupee
The near-term rupee moves will be dictated by the movements in crude prices. “If crude continues to rise, particularly if crude rises above $90/bbl, there can be further depreciation in the rupee, which, in turn, might trigger a new wave of FII selling, said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited