The domestic currency remained under pressure as fading hopes of a near-term resolution to the Iran conflict kept global risk sentiment fragile and weighed on emerging market currencies. Iran on Tuesday (May 26) said the United States is violating a ceasefire by striking targets near the Strait of Hormuz, raising fears of further escalation in the region.
Brent crude futures slipped 0.8% in Asian trading to around $98.8 per barrel, but prices remained elevated near the $100 mark, adding pressure on oil-importing economies such as India. The higher oil prices also dragged on other Asian currencies including the Indonesian rupiah and Philippine peso.
Analysts said the rupee remains vulnerable to weakening beyond the 96-per-dollar level if geopolitical tensions persist and foreign portfolio outflows continue.
Concerns over the economic impact of the Iran conflict on India have triggered sustained foreign investor selling, with overseas investors offloading more than $24 billion worth of Indian stocks and bonds between March and May so far.
“Despite relatively strong macroeconomic fundamentals, structural import dependence continues to bias the currency lower,” Deepali Bhargava, regional head of research for Asia Pacific at ING, said in a note.
She added that the brokerage expects USD/INR to end the year at 95.50, while risks remain tilted toward gradual stabilisation rather than a sharp depreciation.
Meanwhile, Asian equities traded higher, supported by gains in technology-heavy markets such as South Korea and Taiwan, although Indian equity futures pointed to a muted opening.
Among key indicators, the dollar index stood at 99.12, while the one-month non-deliverable rupee forward was quoted at 96.20. The onshore one-month forward premium was at 37 paise.
According to NSDL data, foreign investors bought a net $230.5 million worth of Indian equities on May 25, while selling a net $20.3 million worth of bonds.
–With Reuters inputs
