Indian Rupee Edges Higher at 96.41 Against Dollar Amid Middle East Tensions
The Indian rupee gained slightly against the US dollar despite persistent pressure from elevated crude oil prices and foreign portfolio outflows, highlighting the currency's vulnerability to escalating geopolitical risks.
The Indian rupee opened at 96.41 against the US dollar on Tuesday, gaining 4 paise. This modest recovery follows a previous session where the currency slipped past the 96.50 threshold for the first time in two months. Traders noted that the decline would have been steeper without direct intervention from the Reserve Bank of India to curb foreign exchange volatility.
Elevated energy costs remain the primary headwind for the oil-importing currency. Brent crude briefly exceeded $91 per barrel on Monday before settling around $88.50, driven by renewed hostilities between the US and Iran. Compounding these supply concerns, Iran-backed Houthi rebels in Yemen announced plans to impose a naval blockade on Saudi Arabia, raising fears of a broader regional conflict.
These geopolitical tensions have bolstered safe-haven demand, pushing the US Dollar Index back toward the 101 mark. Simultaneously, US Treasury yields have edged higher as investors price in the inflationary impact of expensive energy on transportation and consumer prices. The Federal Reserve is currently in a pre-meeting blackout period, leaving markets to interpret recent economic data.
Softer inflation and a resilient labor market have sharply reduced expectations for immediate monetary tightening. The CME FedWatch Tool indicates the probability of a July rate hike has fallen to 16.6 percent, down from over 40 percent a week ago. However, markets still assign a nearly 64 percent probability to a rate hike in September, suggesting tightening expectations are merely postponed.
Domestic capital flows are also failing to support the rupee. Foreign portfolio investors remained net sellers of Indian equities, withdrawing ₹1,121 crore in the previous session. This sustained outflow, combined with a firm greenback and high oil prices, continues to weigh heavily on the domestic currency.
Market technicians warn that the rupee remains vulnerable to further depreciation if current resistance levels break. Amit Pabari, managing director of the research team at CR Forex Advisors, noted that the USDINR pair recently achieved the targeted 96.50 milestone. He cautioned that a sustained move above this level could open the door toward 97.00 to 97.50 in the coming days, with 96.10 to 96.20 acting as the first support zone.
