Rupee Plummets to 96.28 as Crude Oil Spike and Geopolitical Tensions Trigger Sharpest Weekly Slide

Rupee Plummets to 96.28 as Crude Oil Spike and Geopolitical Tensions Trigger Sharpest Weekly Slide​

The Indian rupee faced significant pressure on Friday, closing the week at 96.28 per dollar. This marked the sharpest weekly decline for the currency since May, as investors reacted to a volatile combination of rising energy costs and heightened geopolitical tensions.

Trading remained relatively quiet on Friday, yet the underlying pressures from elevated oil prices and robust merchant dollar demand continued to weigh on the currency's trajectory. The rupee saw an approximate 1% week-on-week decline during this period.

Geopolitical Tensions Drive Brent Crude Surge​

The depreciation of the rupee was heavily influenced by a 13% surge in Brent crude oil prices. This spike follows intensified fighting between the U.S. and Iran, which has once again choked energy supplies through the critical Strait of Hormuz.

On Friday alone, Brent crude rose nearly 2% to reach $85.7 per barrel. The escalation occurred as Iran reported fresh strikes on U.S. facilities in the Middle East, including its first direct attack in Syria, following six consecutive nights of U.S. strikes on Iranian military targets.

Divergent Market Behaviors and Bank Intervention​

Despite a four-day losing streak for the currency, dollar sales by state-run banks helped the rupee snap its downward momentum on Friday. Analysts suggest these sales were likely conducted on behalf of the Reserve Bank of India (RBI).

However, merchant dollar demand remains robust, creating a complex environment for exporters and importers. Exporters have withdrawn from the market in anticipation of further weakness, while an FX salesperson at a foreign bank noted that importers are not inclined to let any dips in the USD/INR pair go.

Indian Equities Defy Global Tech Selloff​

While global stock markets experienced a brutal selloff for chipmakers on Friday, Indian equities managed to hold their ground. The Nifty 50 rose 1% despite the broader market turbulence.

This resilience is attributed to India's scant exposure to the booming artificial intelligence sector. In contrast, MSCI's broadest index of Asia-Pacific shares (excluding Japan) saw a decline of nearly 3% during the session.

RBI Faces Growing Pressure to Stabilize Currency​

Traders are now closely monitoring two primary factors: prevailing oil prices and the firmess of the RBI in defending the rupee against further depreciation. The currency is currently approaching record low levels near 97 per dollar.

Krishna Bhimavarapu, APAC economist at State Street Investment Management, noted that the RBI may find itself caught between a rock and a hard place if depreciation pressures persist. The central bank must balance spot-market operations while managing its forward-dollar book, which stood at net liabilities of $106.6 billion in May.