The rupee is expected to fall past the 91 per dollar mark on Monday after the US and Israel bombed Iran over the weekend, risking protracted war in the Middle East, which sapped risk appetite and sparked a sharp rise in crude oil prices.
The one-month, non-deliverable forward indicated the rupee will open in the 91.28-91.32 range versus the U.S. dollar, having settled at 90.9750 on Friday.
Key indicators for USD INR today:
- One-month non-deliverable rupee forward at 91.49.
- Onshore one-month forward premium at 19 paise
- The dollar index is down 0.2% at 97.86
- Brent crude futures up 4.8% at $76.3 per barrel
- Ten-year US bond yield at 3.97%
As per NSDL data, foreign investors sold a net $267.2 million worth of Indian shares and $7.5million in Indian bonds on 26 February.
Air strikes by Israel and the US on Iran over the weekend resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei. Iran fired missile barrages across the region in retaliation, risking dragging its neighbours into the conflict.
US President Donald Trump suggested to the Daily Mail the conflict could last for four more weeks, while posting on social media that attacks would continue until US objectives were met.
The breakout in conflict sent investors running to safe havens such as gold while also pushing up oil prices to their highest in over a year.
Iran has said it has closed navigation through the Strait of Hormuz, a major oil export route though which about a fifth of the world’s total oil consumption passes.
“If meaningful oil price increases are sustained, we think the likes of KRW, INR, and to some extent PHP are more vulnerable given their linkages to oil imports,” Michael Wan, senior currency analyst at MUFG said in a note.
Traders reckon that the Reserve Bank of India will likely step in to avert a sharp slide in the rupee which could put it back in touching distance of its all-time low of 91.9875 hit earlier in the year.