The rupee opened past ₹86 against the US dollar for the second time in two months. It opened at ₹86.15 per dollar, further falling to ₹86.20, compared to the previous close of ₹85.60. This marks a fall of 53 paise from the previous session.
Geopolitical Escalation Drives Currency Volatility
The rupee weakening was sparked by the Israeli airstrikes on Iranian nuclear sites, which created shock waves in global financial markets. The increased geopolitical risk led to a flight to safety, which strengthened the US currency and put pressure on emerging market currencies.
Oil Price Surge Adds to Pressure
Brent crude futures rose over 8% overnight, reaching above $74.88 per barrel, as speculators factored in the risk of Middle East supply disruptions. India, being the third-largest importer of crude oil in the world, is especially exposed to such shocks. The spike in oil prices is expected to widen the country’s current account deficit and stoke inflationary pressures, both of which are negative for the rupee. Importers rushed to cover their dollar positions, further exacerbating the downward move in the currency.
Broader Market Impact and RBI’s Stance
The weakness of the rupee found its echo in general financial markets, with benchmark Sensex and Nifty indices opening lower, following global cues. Foreign portfolio flows accelerated as risk aversion took hold of investors, while safe-haven instruments like gold and US Treasuries witnessed increased demand. The Reserve Bank of India (RBI) was observed stepping into the spot market to iron out volatility, but chose not to aggressively intervene, indicating a desire for a gradual realignment over a sharp correction.
Future Outlook and Key Uncertainties
Market participants remain cautious as the situation in the Middle East continues to unfold. The rupee is likely to remain under pressure in the near term, with further direction hinging on developments in oil prices and geopolitical risk. Analysts are closely watching the RBI’s intervention strategy and the government’s response to mitigate the impact on inflation and external balances.
The rupee’s crossing of the ₹86 level against the US currency is a reflection of the currency’s susceptibility to external shocks, especially those originating from geopolitical developments and commodity price volatility. While uncertainty in the world economy will continue, policymakers and market participants will have to work their way through a tough time characterized by increasing volatility and risk realignment.