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Rupee Falls 9 Paise to 94.54 After Iran Tensions Spook Markets
The rupee erased an early gain to close at 94.54 after renewed US-Iran hostilities dented risk appetite and reversed positive flows from oil and foreign inflows.
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The rupee gave back an early advance to close 9 paise lower at 94.54 on Monday, surrendering gains from supportive oil prices and foreign inflows as renewed military exchanges between the U.S. and Iran jolted risk appetite.
At the interbank market, the rupee opened at 94.36, touched a high of 94.25, then reversed to a low of 94.56 before settling at 94.54, a provisional level from the Reserve Bank of India. The previous close was 94.45 on Thursday. Indian markets were shut Friday for Muharram.
How the Geopolitical Shock Hit the Rupee
The trigger was a fresh wave of U.S. airstrikes against Iran followed by Iranian drone and missile attacks targeting Bahrain and Kuwait on Sunday. Iran has threatened a complete halt in peace negotiations if Washington continues its campaign, according to reports from the region.
That hit risk assets broadly. The Sensex fell 372 points to 76,728. The Nifty dropped 110 points to 23,946. Brent crude futures rose 1.26% to $72.90 a barrel, a headwind for India, the world's third-largest oil importer. Higher crude widens the trade deficit and pressures the rupee.
The dollar index, which measures the greenback against six peers, was slightly lower at 101.28, down 0.07%. So the rupee's weakness was not a broad dollar rally but a local risk premium tied to geopolitical risk and oil.
Foreign institutional investors were net buyers of Indian equities on Thursday, purchasing Rs 383.76 crore, exchange data showed. That flow was positive but insufficient to offset the geopolitical shock.
India's forex reserves rose $963 million to $672.587 billion in the week ended June 19, the RBI said Friday. The previous week had seen a $9.985 billion drop.
Anuj Choudhary, research analyst at Mirae Asset ShareKhan, said the rupee would trade with a negative bias on the Iran tensions. Overall dollar strength and a hawkish Fed may also weigh, he said, while a decline in crude and easing inflation concerns could support the rupee at lower levels. He pegged the USD-INR spot range at 94.20 to 94.80.