The Indian rupee declined on Wednesday and showed potential for greater losses amid rising oil prices, although dollar sales from state-run banks mitigated some of the decline. This pattern has been consistent in recent trading sessions as the South Asian currency remains under significant pressure.
Escalating concerns over an unresolved U.S.-Israeli conflict involving Iran have pushed oil prices near $100 per barrel, raising alarm among investors about the implications for energy-importing nations like India.
On Wednesday, the rupee fell by 0.1% to 95.7675 per dollar, with Asian trading volumes diminished due to multiple regional holidays. The U.S. dollar sustained gains from the previous session after Iranian officials accused the U.S. of breaching a ceasefire, complicating efforts to resolve the ongoing three-month conflict.
These developments threaten to disrupt the rupee’s tentative recovery, which had been aided by proactive interventions from the Reserve Bank of India (RBI) that bolstered the currency from its historical low of nearly 97 per dollar. “The rupee has started moving like a shadow of Brent crude — reacting almost instantly to every rise and fall in energy prices,” remarked Amit Pabari, managing director of FX advisory firm CR Forex. He noted that “the 96.20–96.40 range is anticipated to act as strong resistance for USD/INR.”
In addition, dollar-rupee forward premiums decreased on Wednesday, with the 1-year implied yield falling by 8 basis points to 3.23%. A trader at a foreign bank observed, “It seems like the market got ahead of itself in pricing rate hikes by the RBI, and that is being trimmed now in the swaps market.” The 1-year overnight index swap rate, which reflects future policy expectations, was recorded at 6.13%, down 17 basis points for the week. The RBI is expected to announce its policy decision on June 5.
