Indian Rupee Hits Three-Week Low on High Energy Costs
The Indian rupee fell to 93.8450 per dollar on Wednesday as oil prices rose above 98 dollars. The central bank likely intervened to limit the currency losses.
The currency of India weakened on Wednesday as rising energy costs and persistent geopolitical friction weighed on oil-sensitive regional markets. The rupee dropped to an intra-day low of 93.8450 against the dollar, marking its lowest level since late March, before settling near 93.75. This decline of 0.3% was partially mitigated by suspected intervention from the central bank, which reportedly sold dollars to stabilize the local unit.
The pressure on the currency follows a surge in Brent Crude Oil prices, which climbed 3% to exceed $98 per barrel. Investors remain cautious regarding the conflict involving Iran, where uncertainty persists despite an extension of a ceasefire. Other regional currencies with high sensitivity to oil prices, including those of the Philippines and Indonesia, also faced downward pressure during the session.
While the United States has signaled a unilateral extension of the ceasefire, the geopolitical landscape remains tense. President Trump indicated that the naval blockade of Iranian maritime trade would continue, a move that Tehran views as an act of aggression.
Volatility in markets is likely to pick up as both sides look to strengthen their leverage for negotiations, but any USD rebound should be restrained as a re-escalation into conflict remains unlikely for now, analysts at DBS said in a note.
Broader financial markets reflected this risk-averse sentiment. A key regional equity index from MSCI INC fell by 0.7%, while the KOTAK NIFTY 50 index in Mumbai declined by 0.8%. In the derivatives market, one-year dollar-rupee forward premiums rose by 3 basis points to 3.13%, driven by increased hedging demand from importers.
Market participants noted that while exporters showed interest in selling dollars in the non-deliverable forward (NDF) market, commercial banks have remained cautious. This hesitation follows recent regulatory efforts by the Reserve Bank of India to curb arbitrage activities between local and offshore markets.
