Rupee Logs Sharpest Weekly Drop Since May, Plunges 1% to 96.28 as Oil Surge, Geopolitics Sting

Mumbai, July 18: The Indian rupee recorded its most significant weekly decline since May, tumbling nearly 1% against the US dollar as escalating hostilities between the United States and Iran sent Brent crude oil prices soaring 13% during the week, reigniting concerns over India’s swelling import bill and widening trade deficit. The domestic currency closed at 96.28 per dollar on Friday, down from the previous week’s close of approximately 95.33.  

The rupee touched an intraday low of 96.58 during the week, its weakest level since hitting a record low of 96.96 in May. The currency’s decline was exacerbated by persistent dollar demand from importers, sustained foreign portfolio outflows and a resilient greenback buoyed by elevated US Treasury yields, even as the Reserve Bank of India (RBI) intervened intermittently through state-run banks to curb excessive volatility. 

Rupee Crashes 39 Paise to 95.77 as Iran Shuts Strait of Hormuz 

The week opened on a disastrous note for the rupee as geopolitical tensions in West Asia escalated dramatically over the weekend. Iran declared the temporary closure of the Strait of Hormuz, a critical chokepoint for global oil shipments, following fresh US strikes on Iranian military facilities. Brent crude surged above $79 per barrel, up from $76 the previous week, triggering a broad-based sell-off in emerging market currencies. 

The rupee opened 38 paise lower at 95.70 against the US dollar, compared with the previous close of 95.32. By mid-morning, the currency had weakened further to 95.77, registering a loss of 39 paise. State-run banks were spotted offering dollars, most likely on behalf of the RBI, helping limit the currency’s fall near 95.7875 per dollar, its weakest level since 4 June. 

“The markets had largely taken off the risk of severe escalation in the Gulf, but with that back on the table, USD/INR could test 96.50 and above levels,” a trader at a foreign bank said. 

The rupee finally closed at 95.62 per dollar, down 29 paise, marking a four-week low. Foreign portfolio investors (FPIs) net sold equities worth $331 million, while elevated crude prices continued to increase India’s import bill and demand for US dollars. 

Rupee Slides Past 96 as Oil Rally Intensifies, RBI Steps In 

The rupee came under fresh pressure on Tuesday as higher crude oil prices and renewed geopolitical tensions continued to weigh on the domestic currency. The currency breached the psychological 96 per dollar mark for the first time in nearly two months, as Brent crude climbed further amid escalating US-Iran hostilities. The rupee weakened beyond 96 per US dollar, while the benchmark 10-year bond yield rose 6 basis points as inflation concerns resurfaced. 

Market participants noted that the rupee had depreciated by over 1% since the last week of June, despite sustained foreign debt inflows and measures announced by the RBI to attract overseas capital. The central bank had introduced several initiatives in June, including exemption of FPIs from tax on sovereign bonds, subsidised hedging costs on FCNR(B) deposits and a concessional dollar-swap window for public sector unit loans. These measures helped attract around $6.66 billion into Indian debt markets from early June, enabling the rupee to recover nearly 2.2% from its record low by the end of June. 

However, the latest geopolitical escalation once again put upward pressure on the exchange rate. Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, noted that demand for the dollar remains strong, with India’s imports for June at $70 billion against exports of $40 billion, resulting in a persistent trade deficit. He added that inflows into FCNR(B) deposits have remained tepid due to a low arbitrage differential and tax-related issues for NRIs in the US and UK. 

Rupee Consolidates Near 96.26 as RBI Adopts Measured Intervention 

By Wednesday, the rupee had stabilised somewhat, closing at approximately 96.26 per dollar as the central bank stepped up its intervention in both spot and non-deliverable forward markets to reduce excessive volatility. Market participants said the RBI’s intervention had been relatively measured given the intensity of pressure on the currency. 

The rupee underperformed most Asian currencies on Wednesday, extending losses for a third consecutive session. Traders said the pressure had largely come from higher demand for dollars from importers and exporter-related flows, along with some large overseas payments. The benchmark 10-year bond yield rose 6 basis points as higher crude oil prices and inflation concerns weighed on markets. 

“The rupee has continued to weaken because RBI’s interventions have been at a slower pace than expected, given its existing positions, while overall flows have remained negative. The hurdle at 95.80 was broken,” analysts noted. 

Rupee Hits 2-Month Low of 96.42 as FIIs Offload ₹4,205 Crore 

Thursday proved to be the worst session of the week for the rupee. The currency depreciated for the fourth straight day, shedding 17 paise to settle at 96.42 against the US dollar, its weakest closing level in nearly two months. The rupee touched an intraday low of 96.38 per dollar, a level at which further weakness was contained by RBI intervention, traders said. 

The decline was driven by a combination of factors. Brent crude climbed close to $85 per barrel, gaining around 12% during the week amid escalating West Asia tensions. The increase in oil prices raised concerns over India’s import bill, as the country meets a significant portion of its crude oil requirements through imports. A rise in crude prices typically increases dollar demand from oil marketing companies, putting pressure on the rupee. 

Foreign Institutional Investors (FIIs) offloaded equities worth ₹4,205.56 crore on Thursday, according to exchange data. Despite a turnaround in foreign portfolio flows into Indian equities, with foreign investors buying around $1.5 billion worth of Indian equities so far in July, continued dollar demand from importers and elevated crude prices kept the rupee under pressure. 

Rupee Snaps 4-Day Losing Streak, Rises 14 Paise to 96.28 on RBI Intervention 

The rupee snapped its four-session losing streak on Friday, rising 14 paise to close at 96.28 (provisional) against the US dollar, as likely intervention from the Reserve Bank of India halted the currency’s slide. The rupee opened at 96.35 against the greenback and traded in a narrow range of 96.27-96.41 before settling at 96.28. 

State-run banks were spotted offering dollars, most likely on behalf of the RBI, limiting the currency’s decline even as dollar demand from merchants and foreign banks exerted pressure. The RBI has been intervening in both the spot and non-deliverable forward markets to reduce excessive volatility in the currency. However, market participants said the central bank had not appeared to defend a particular exchange-rate level aggressively but had focused on ensuring orderly movement in the currency. 

“The rupee was broadly steady on Friday after a likely RBI intervention halted its four-day decline,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP. “With no major domestic triggers, the currency continued to consolidate after recent weakness. However, the broader bias for the rupee remains weak as elevated crude oil prices and cautious foreign fund flows continue to weigh on sentiment,” he added. 

The US expanded its airstrike campaign against Iran early on Friday by increasingly hitting bridges, part of President Donald Trump’s threats to start striking infrastructure to pressure Tehran to ease its chokehold on the Strait of Hormuz. Iran launched new missile attacks against US-allied nations in West Asia and warned that its attacks would escalate. Brent crude was last up nearly 2% on the day at $85.7 per barrel. 

RBI’s Forward Book Under Strain as Currency Approaches Record Lows 

The RBI’s ability to defend the rupee has come under increasing scrutiny as the currency approaches record low levels of near 97 per dollar. The central bank’s net forward dollar liabilities stood at $106.6 billion in May. Kotak Securities’ Anindya Banerjee noted that the RBI is expected to aggressively intervene in the currency markets if the rupee faces excessive downward pressure toward the 98 to 100 mark, though short-term capital inflows will provide a major cushion against global energy shocks. 

The RBI has maintained that it remains watchful of developments in the foreign exchange market and will continue to intervene whenever required to ensure orderly market conditions, while reiterating that it does not target any specific exchange rate. India’s foreign exchange reserves rose by $964 million to $675.16 billion for the week ended 10 July, according to RBI data released on Friday. 

RBI Governor Sanjay Malhotra said in an interview on Friday that “uncertainty on the external sector is the biggest challenge confronting India at the moment.” He also noted that recent policy measures taken to draw dollar inflows alongside inherent strength in India’s external sector are key positives for the rupee. 

Dollar Index Steady at 100.7, Asian Currencies Mixed 

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading nearly flat at 100.7 on Friday. Asian currencies were mostly rangebound, reflecting cautious sentiment across regional markets. The Indonesian rupiah emerged as the top performer among regional currencies on Monday, appreciating 0.35%, followed by the Chinese renminbi (+0.22%) and Taiwan dollar (+0.19%). On the other hand, the South Korean won was the weakest currency in the region, declining 0.34%, while the Japanese yen slipped 0.25%. 

The US dollar strengthened against most major currencies as investors sought safety amid geopolitical uncertainty and rising expectations that central banks may need to keep interest rates higher for longer. The dollar gained 0.1% against the Japanese yen to 161.92, while the euro eased 0.1% to $1.1403 and the British pound slipped 0.1% to $1.3383. 

The rupee logged its sharpest weekly drop since May, declining approximately 1% to close at 96.28 against the US dollar, as Brent crude surged 13% amid escalating US-Iran hostilities. The currency breached 96 per dollar mid-week and touched an intraday low of 96.58. The RBI intervened through state-run banks in both spot and forward markets, helping the rupee snap a four-day losing streak on Friday. Key triggers to monitor include West Asia developments, oil price movements, RBI’s intervention strategy, FII flows, and the US dollar index trajectory. India’s forex reserves stood at $675.16 billion as of 10 July.