The Indian Rupee declined sharply on Monday and crossed the Rs. 95 mark against the US dollar. This decline comes amid rising crude oil prices and growing geopolitical tensions in West Asia. The domestic currency opened around 73 paise lower from the previous close of Rs. 94.25 to Rs. 94.9750 against the US dollar.
The decline in the rupee came as Brent crude futures rose by 4.14% to $105.5 a barrel, while US West Texas Intermediate (WTI) gained 4.80% to $100 a barrel. Oil prices advanced after US President Donald Trump rejected Iran's new peace proposal, raising fears that West Asia's conflict would continue to disrupt global energy supply.
A rise in crude oil prices for India, which imports around 85% of its oil needs, raises the import bill and demand for US dollars. This, in turn, exerts further pressure on the rupee and adds to the inflation concerns.
The Strait of Hormuz, which serves as a vital shipping channel transporting around one-fifth of the global oil, is key to geopolitical concerns and adds to the volatility in commodity and currency markets.
The domestic equity markets also fell, adding to the pressure on the Indian rupee. At the press time, the Sensex is down by 982 points or 1.26% at 76,388, while the Nifty 50 slipped 270 points or 1.11% to 23,925.
India VIX remained above 18 while the midcap and smallcap indices were down by over 1% each. Major laggards were stocks like Titan, State Bank of India, Bharti Airtel, and InterGlobe Aviation.
Amit Pabari, MD & CEO of CR Forex Advisors, said, “On Friday, USD/INR kept swinging between 94.40 and 94.70, almost like a pendulum, refusing to choose a direction. This has been the story of the rupee over the last fifteen years, a currency constantly learning how to survive in a world addicted to the Dollar.”
He also pointed out that while India's forex reserves are around $690 billion, more than double a decade ago, the rupee has continued to depreciate due to the overall demand for dollars, which has increased at a faster rate over time.
Meanwhile, the global currency markets also continued to be volatile. Investors paid more attention to geopolitical uncertainty and global growth trends slowing down as the US economy increased employment by 115,000 jobs in April, slightly higher than the market expectation of 62,000 jobs.
According to Pabari, “As a result, the Dollar Index was below 98, giving emerging-market currencies, including the rupee, some room to recover,” though escalating tensions have once again shifted sentiment toward safer assets like the US dollar.
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