Rupee weakens as oil and geopolitical risks mount

The rupee weakened to around 95.76 against the US dollar on Wednesday as rising crude oil prices, persistent tensions in West Asia and losses in domestic equities renewed pressure on the currency.

The currency touched a three-week low during the session and finished near 95.75 to the dollar, extending its decline from Tuesday’s close of 95.68. Dollar demand from importers remained firm, while the sharp increase in international oil prices added to concerns over the country’s import bill and inflation outlook.

The Reserve Bank of India was seen providing support to the rupee through state-owned banks as the exchange rate approached the psychologically important 96-per-dollar level. Market participants have become cautious about building aggressive positions against the currency because of the possibility of further central bank intervention if volatility intensifies. Exporters also stepped up dollar sales as the rupee moved towards 96.

Pressure on the currency was dominated by crude oil, with benchmark Brent climbing above $91 a barrel after extending gains for a fourth consecutive session. Brent traded around $91.6-$92 during Wednesday’s international session, reflecting mounting concern about disruptions linked to the conflict involving Iran and continued uncertainty over shipping through the Strait of Hormuz.

Oil prices have gained more than 3 per cent this week, strengthening the link between geopolitical developments and movements in the rupee. Higher crude costs generally weigh on the currency because the country depends heavily on imported energy, increasing demand for dollars among refiners and other importers when international prices rise.

Uncertainty surrounding the Strait of Hormuz remains a central concern for energy markets. The waterway is one of the world’s most important oil-shipping routes, and prolonged disruption could keep freight, insurance and physical crude costs elevated even if benchmark prices stabilise. Negotiations aimed at reducing tensions have failed to produce a durable settlement, leaving traders to maintain a geopolitical risk premium in oil prices.

The currency’s decline came despite broader weakness in the US dollar. The dollar index, which measures the greenback against six major currencies, hovered close to 99.4, while several other Asian currencies strengthened. That divergence highlighted the pressure being exerted on the rupee by oil imports and domestic dollar demand rather than by a broad international surge in the US currency.

Equity-market weakness added another layer of pressure. The Sensex fell 326 points on Wednesday and the Nifty extended its losing run as investors reacted to elevated oil prices and uncertainty surrounding the West Asia conflict. Declining shares can weaken sentiment towards the rupee, particularly when losses are accompanied by overseas portfolio outflows or expectations of weaker capital inflows.

The rupee had closed at 95.6025 on Monday and 95.68 on Tuesday, showing a steady depreciation as Brent climbed from below $90 towards $92 a barrel. The Reserve Bank has intervened during periods of heightened volatility, limiting abrupt declines while allowing the currency to adjust to changes in international markets.

Foreign-exchange reserves exceeding $700 billion provide policymakers with a substantial buffer for managing disorderly currency movements. Policy-related foreign-currency inflows have also strengthened the external position, although traders expect authorities to focus on containing excessive volatility rather than defending a specific exchange rate over an extended period.

Bond markets are contributing to the complicated outlook. Long-term government yields in major economies have remained elevated amid concerns about inflation, public borrowing and the possibility that higher energy prices could keep monetary policy restrictive. Rising global yields can make emerging-market assets less attractive and encourage capital movements towards dollar-denominated securities.

Attention is also turning to monetary-policy signals from the Reserve Bank and the US Federal Reserve. Traders are assessing whether persistent energy-driven inflation could alter expectations for interest rates, particularly if crude prices stay elevated. The interaction between oil, interest-rate expectations and capital flows is likely to remain important for the rupee as it trades close to the 96-per-dollar threshold.