USD vs INR: The Indian rupee was trading 20 paise lower at 95.43 to a US dollar in early trade on Tuesday, following a firming dollar in the outside markets as geopolitical concerns grew in the Gulf area. The rupee had started trading at 95.30 in the interbank foreign exchange market and weakened further to its all-time low.
The rupee on Monday had already closed at an all-time low of 95.23 against the dollar.
USD vs INR: Rupee fall: The dollar and geopolitical risk as safe haven
The latest wave of currency depreciation was triggered by intensified military confrontations between US and Iranian forces in the Gulf, Forex brokers said.
There is increased geopolitical uncertainty, investor morale is fragile, and the situation has triggered a rapid move to safe haven assets. The US dollar has been the largest winner from this risk-off shift.
“Market sentiments remained fragile after renewed military exchanges between US and Iranian forces when Iranian forces launched fresh attacks in the Gulf as both sides sought to assert control over the strategic waterway,” said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.
Rising oil prices and a stronger dollar index are making the rupee increasingly vulnerable, with oil importers and foreign portfolio investors contributing to dollar demand, he said.
USD vs INR: Crude at $113-115 – The real pain point for India
Indian currency is in focus as the benchmark Brent crude remains around $113-115 a barrel, which fuels inflation concerns as well as fears of a current account deficit for a major crude importer such as India.
Rising crude prices typically worsen India’s trade balance, raise import costs and increase dollar purchases by oil marketing companies, leading to pressure on the rupee.
“With oil boiling, rupee on Monday closed at a low of 95.0875 and this morning the opening was still lower as it becomes more and more vulnerable when dollar index rises due to safe-haven buying and oil prices rise due to the continuous fighting in the Gulf Region,” Bhansali said.
USD vs INR: Dollar index rises as investors seek shelter in world
The US dollar index, which gauges the greenback against a basket of six major currencies, increased 0.15% to 98.51, as robust demand for dollar assets was seen in the backdrop of global uncertainty.
Investor exposure to the Indian rupee and other riskier developing market assets has been slashed, leading to a surge in safe-haven demand for the dollar.
USD vs INR: Dollar demand fuelled by oil adds to pressure
Higher crude prices are also prompting oil companies to buy more dollars to pay for imports, further weakening the currency, market experts said.
Foreign portfolio investors (FPIs) also add to the demand for dollars at times of heightened volatility, putting pressure on the currency.
USD vs INR: Equity markets are also under pressure
Sentiment on a weak currency was also reflected in equity markets. Benchmark indices opened lower on Tuesday due to cautious global cues.
Sensex: 76,934.82, down 334.58 points or 0.43% (Figures as of 2:15pm)
Nifty 50: 24,015.30 (-104 points or -0.43%) (Figures as of 2:15pm)
FIIs continue to be active purchasers notwithstanding volatility:
Despite currency and geopolitical pressure, foreign institutional investors (FIIs) were net buyers in the cash market on Monday, buying shares worth ₹2,835.62 crore, exchange data showed.
USD vs INR: Outlook: Rupee faces risk from external shock
Geopolitical tensions persist in the Gulf region and crude oil prices remain high, implying continued pressure on the rupee in the short run. Instead, global risk appetite, dollar strength, and energy price movements will guide the direction of the rupee.
