The rupee declined 0.7 per cent on Monday, pressured by a sharp rise in crude oil prices following the US move to block ships transiting the Strait of Hormuz after the collapse of peace talks with Iran. Government bond yields also inched up, tracking the rise in crude and renewed concerns over imported inflation.
During the day, the Indian unit fell to 93.44 per dollar before settling at 93.38 against 92.73 in the previous session. So far in April, the rupee appreciated 1.54 per cent against the dollar.
The domestic currency opened weaker and extended losses through the session, slipping by over half a rupee against the US dollar. The fall comes after a brief phase of relative stability, with the rupee once again tracking movements in crude oil, capital flows, and overall risk sentiment.
The rupee was the worst-performing Asian currency on Monday. In April, however, the Indian unit gained 1.54 per cent against the dollar.
“Today the rupee fell by 65 paise as the dollar index rose, as well as oil prices, and oil companies were buying dollars,” said Anil Kumar Bhasali, head of treasury, Finrex Treasury Advisors.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was up 0.32 per cent at 98.75. Brent crude, the global oil benchmark, rose 7.69 per cent to $102.52 per barrel.
The surge in oil prices has raised concerns over India’s import bill and inflation outlook, given the country’s dependence on crude imports. This weighed on the currency, with market participants also pointing to cautious foreign fund flows amid global uncertainty.
“The rupee is reacting largely to the sharp spike in crude prices. With oil back above $100 per barrel, demand for dollars from oil companies has picked up, putting pressure on the currency,” said a forex trader at a state-owned bank.
Bond yields also hardened in response to the rise in crude prices. The benchmark 10-year government bond yield edged up to 6.97 per cent before settling at 6.94 per cent, compared with its previous close of 6.91 per cent. The move reflects expectations that higher oil prices could feed into inflation and limit the scope for monetary easing.
“The market opened weaker, but later it recovered and cut about half of its losses. This was mainly because traders who had earlier bet on prices falling started buying back their positions, which supported the recovery. In other words, the bounce was driven by traders reversing their negative bets, helping the market move up,” said a dealer at a private bank.
Traders said the uptick in yields follows a recent softening trend, as markets reassess the inflation trajectory in light of volatile commodity prices. The move also comes ahead of key domestic macroeconomic data, which could provide further cues on price trends.
Going ahead, market participants expect both the rupee and bond yields to remain sensitive to global developments, particularly movements in crude oil and geopolitical risks. RBI liquidity conditions and foreign portfolio flows will also be closely tracked for directional cues. Bond and foreign exchange markets will remain closed on Tuesday on account of Ambedkar Jayanti.