Indian Rupee Falls to Two-Month Low Amid Geopolitical Headwinds and High Oil Prices

Geopolitical headwinds, elevated crude oil prices and surging global bond yields continue to put downside pressure on the Indian rupee , which closed at the 96.31 per dollar mark on Thursday, falling to its lowest level in more than two months. A firm greenback added to the fall for the Indian rupee, which fell 0.5% on the day, lower by 36 paise from its previous close. The dollar index strengthened near the 102 mark, reaching its highest level since late June. A strong dollar makes emerging market currencies less appealing for foreign investors. Traders reported that the Reserve Bank of India carried out dollar sales to help curb the currency’s fall. Experts continue to note that supply disruptions caused by the Middle East conflict continue to keep oil prices elevated. Brent crude prices continue to hover over the $100/bbl mark as the US-Iran negotiations remain uncertain, and shipments through waterway passage- the Strait of Hormuz- remain below pre-war levels. “With Brent above the 100/bbl area, the pressure from crude continues to be severe along with the pressure from FPIs who are selling huge amounts in equity and debt,” said Anil Kumar Bhansali, head of treasury at Finrex Advisory LLP. Elevated crude oil prices are typically negative for the currency, as India is a net oil importer. Higher prices widen the country’s import bill and current account deficit, thereby mounting inflationary pressures. The US 10-year Treasury yield climbed near its multi-year highs of 5.35%, further dampening the sentiment for the local unit. So far this year, foreign investors have offloaded domestic equities worth Rs 2.15 lakh crore, surpassing last year’s total outflow of Rs 1.66 lakh crore. Sustained selling by FIIs raises dollar demand, pushing down the rupee’s value. Additionally, trade relations with the US continue to weigh on the domestic unit as Washington recently passed the Graham Bill, which empowers the president to impose tariffs of up to 100% on countries that purchase Russian crude oil. Indian benchmark indices headed for their eighth consecutive negative weekly close, marking their longest losing streak in almost 25 years. Domestic equities logged their worst monthly performance since March, as both Sensex and Nifty 50 slumped 6% in September, Weak equity markets are rupee-negative as they deter foreign inflows. Going ahead, markets will assess the RBI’s stance at its October meeting. Economists at BofA expect the Indian central bank to hike rates by 25 basis points, and they also expect a cumulative rate hike of 100 bps in FY27, taking the terminal policy rate to 6.25%. “The currency is likely to remain volatile, with the range seen between 95.75–96.75,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities. Indian equity and money markets will remain shut tomorrow, October 2, on account of Mahatma Gandhi Jayanti.