Indian rupee retreats to near two-week low as US-Iran standoff pushes oil higher

Mumbai: The Indian rupee descended to its weakest level in almost two weeks on Tuesday, as oil prices surged amid doubts over a potential U.S.-Iran agreement to end the conflict and reopen the Strait of Hormuz. The Reserve Bank of India's possible intervention to sell dollars appeared to curb the currency's decline, traders noted.

At the day's close, the rupee traded at 95.4350 per dollar, marking a 0.15% decline from its previous value. The uncertainty also weighed on equities, with the Nifty 50 falling 0.5% and the benchmark 10-year bond yielding 3 basis points more. Given that India relies on imports for nearly 90% of its crude oil, the Indian rupee is particularly susceptible to fluctuations in oil prices.

Brent crude oil futures rose nearly 2.5% to $89.9 per barrel. A private bank trader stated, "The absence of significant outflows or derivative maturities was beneficial for the rupee on the day, but if oil prices continue to rise, anticipate it hovering near 95.80 soon, unless the RBI intervenes staunchly." Central bank interventions in recent sessions have kept dollar-rupee volatility in check, despite renewed Middle East conflict concerns.

The 1-month implied volatility for the dollar-rupee pair fell to 4.6%, its lowest since late June, indicating market expectations of the central bank's role in preventing sharp movements. This week's focus lies on India and U.S. consumer inflation data, set to be released on Wednesday. DBS analysts in a note mentioned, "If Brent crude prices stabilize around $70-100 per barrel, it reduces geopolitical tail risks around the U.S.-Iran conflict and keeps the FX market highly data-dependent."