Rupee hits record low: Why the ‘Hormuz Blockade’ and $105 crude are pushing the Indian currency towards 96/$ – Market News
There seems to be no respite for the rupee. It has plunged to new lows, treading dangerously close to the 96 per dollar levels. The extended West Asia conflict, elevated crude prices, and foreign investor outflows continue to weigh on the currency. It hit a record low of 95.62 against the US dollar in early trade.
Traders quoted by Reuters reported that the RBI likely stepped in to help curb the domestic currency’s fall, following which it opened near the 95.50 mark against the greenback. Since the start of the year, the Indian rupee has depreciated by more than 5%, making it one of the most volatile Asian currencies.
Here’s what added to today’s decline:
Market apprehension about the never-ending US-Iran conflict
US President Donald Trump on Monday remarked that the Iran ceasefire is on “massive life support”, raising market fears of a broader conflict between the two regions as the chokepoint, the Strait of Hormuz, remains largely closed.
Supply disruptions in the Hormuz route continue to add to the currency’s decline, as India is a net oil importer and meets more than 80% of its energy requirements from the Middle East.
Elevated oil prices deepen currency concerns
Oil is predominantly traded in dollars, and a rise in crude oil prices weighs negatively on emerging market currencies. Brent crude futures surged near the $105 per barrel mark, while the US benchmark, West Texas Intermediate, was quoted around the $99 per barrel level.
The rise in crude prices, coupled with the Middle East tensions, has elevated fears of supply disruptions via the Hormuz passage, which transits nearly 20% of the world’s energy requirements.
Higher oil prices put pressure on the country’s import bill, which tends to widen its current account deficit.
PM remarks add keep the sentiment fragile
Over the weekend, at a public event, India’s Prime Minister Narendra Modi urged the public to limit fuel consumption, lower imports, and reduce gold buying.
“Markets interpreted these remarks as a subtle acknowledgment that India’s trade deficit and balance-of-payments pressures could worsen if crude prices remain elevated for longer,” said Amit Pabari, MD at CR Forex Advisors.
Indian stock markets bore the brunt of these words, with both benchmark indices closing in the red on Monday. Selling pressure is being witnessed today as well, with the Sensex falling 748.22 points, or 0.98%, to 75,267.06, while the Nifty declined 208.70 points, or 0.88%, to 23,607.15.
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Foreign investor outflows keep the currency on edge
FPIs have withdrawn more than Rs 2 lakh crore from domestic equities, adding pressure on the currency, as experts have cited that with the AI boom, FIIs are venturing into other markets.
“Currency depreciation and concerns surrounding earnings growth in India have been important factors driving FPI flows out of India this year. The impressive earnings growth expected in markets like South Korea and Taiwan this year, thanks to the AI boom, is attracting FPI flows into these markets in a big way,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments, in a separate note.
As per NSE data, foreign investors were net sellers of equities worth Rs 7,679 crore as of May 11.
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Not just the Indian rupee
While the Indian rupee has been impacted more than its counterparts, steep declines are being witnessed in other emerging market currencies as well, especially those of net oil importers like India.
On May 12, the Indonesian rupiah fell to a record low of 17,500 against the US Dollar, while the Philippine peso extended steep declines, sliding 0.8%.
For the Indian rupee, the 96-level against the US Dollar now remains a psychologically important level. Currency market experts have also noted that the probability of the rupee breaching the 100 level against the greenback remains low, but cannot be ruled out.
Outlook for rupee
“Technically, the 94.00–94.20 zone is expected to act as a strong support area for USD/INR,” said Pabari. He added that on the upside, 95.50 is a crucial resistance level. A sustained break above 95.50 could immediately trigger another sharp 50-paise move higher in the pair, the forex analyst said.
