The Indian rupee weakened against the US dollar as rising crude oil prices and escalating geopolitical tensions in the Middle East fuel investor risk aversion and foreign fund outflows.

Illustration: Uttam Ghosh

The rupee depreciated 18 paise against the US dollar on Friday to close at 91.82 against the American currency, as surging crude oil prices and a shift toward risk-aversion weighed on the currency.

Forex experts said the rupee is under pressure as the escalating Middle-East conflict drove demand for safe-haven assets.

Moreover, persistent foreign fund outflows and a negative trend in domestic equities further dented investor sentiment.

However, the depreciation bias was contained to some extent following the US administration’s decision to allow Indian refiners to purchase Russian oil for 30 days, a move likely to ease pressure on global energy flows amid the ongoing war in West Asia.

At the interbank foreign exchange market, the rupee opened at its previous session’s closing level of 91.64 against the greenback and witnessed an intraday high of 91.59 and a low of 91.85 during the session.

At the end of Friday’s trade, the rupee settled at 91.82 against the US dollar, registering a loss of 18 paise from its previous closing level.

The Indian currency recovered 41 paise to settle at 91.64 against the dollar on Thursday after losing 97 paise in the preceding two sessions.

Factors Influencing Rupee Depreciation

According to analysts, several factors, including shipping disruptions in the Strait of Hormuz, triggered by the war involving the US, Iran and Israel, have added pressure to the Indian currency.

Moody’s Ratings on Friday said India could face pressure on the rupee, higher inflation and a widening current account deficit if the escalating Middle East conflict spikes energy prices and disrupts supplies, given its heavy dependence on crude and LNG imports from the region.

“Costly energy imports would weaken the rupee, raise inflation, worsen the current account balance and complicate monetary policy as well as fiscal management if they lead to expanded subsidies to help offset the economic shock,” the rating agency said in a note.

Dhiraj Nim, FX strategist at ANZ Research, said the “rupee could breach the 92.50 level against the dollar if oil prices climb sharply, although heavier RBI intervention would likely keep the market choppy”.

ANZ has projected the rupee to touch 93 a dollar by the year-end, but it said: “the level could be reached earlier if geopolitical tensions persist and keep oil prices elevated”.

Suggesting RBI’s intervention in the spot market, Nim said the central bank may also need to step up activity in the offshore non-deliverable forward (NDF) market, where global shocks can influence sentiment and spill over into the onshore market.

Kunal Sodhani, head of treasury at Shinhan Bank, said the rupee could trade broadly in the 91.40-93.00 range in the near term under the current global environment.

Global Market Indicators

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.10 per cent higher at 99.41.

Brent crude, the global oil benchmark, was higher by 5.87 per cent at USD 90.42 per barrel in futures trade.

On the domestic equity market front, the Sensex logged a steep loss of 1,097.00 points or 1.37 per cent to settle at 78,918.90, while Nifty descended 315.45 points or 1.27 per cent to 24,450.45.

Foreign institutional investors sold equities worth Rs 6,030.38 crore on a net basis on Friday, according to exchange data.