The Indian rupee crossed 94 against the dollar on Thursday as oil prices spiked and stayed above $ 100 per barrel. The domestic currency ended at 94.11, down 30 paise from the previous close, the highest level nearly three weeks, according to Bloomberg.
Uncertainty surrounding US-Iran peace talks is putting upward pressure on crude oil prices, which rose as much as to $ 106 per barrel. This has placed emerging market currencies under pressure, including the Indian rupee. The ongoing blockade of the Strait of Hormuz—a vital energy corridor—has sparked concerns over inflationary pressures and a higher import bill.
Geopolitical Headwinds
The rupee has declined over 1% this week, giving up gains led by the Reserve Bank of India’s forex restrictions. So far in the calendar year, the currency fell 4.7%. The rupee emerged as the worst-performing Asian currency during the period, followed by the Indonesian rupiah and Thai baht.
“Rising crude oil prices pushed the rupee lower, alongside a rising dollar index,” said said Dilip Parmer, research analyst at HDFC Securities. The dollar index has strengthened, driven by heightened safe-haven demand. It rose 0.15% to 98.75 on Thursday.
Regulatory Reversal
Parmer added that the recent RBI relaxation has fueled a spike in hedging demand, intensifying pressure on the rupee. “We could see the rupee testing levels around 94.60 going ahead.”
On April 20, the RBI rolled back some forex curbs by withdrawing its circular barring banks from offering certain derivative contracts to resident and non-resident clients, now allowing cancellation or rebooking as well.
Forex traders and analysts said that currency will depreciate further if there is no clarity over the West Asia crisis. “With no resolution in sight for the Middle East tensions, further rupee depreciation looks likely on the cards. However, I expect the RBI may step in to defend key levels,” said a dealer at a private sector bank.
