Rupee Plummets to Historic Low Against US Dollar Amid Geopolitical Unrest
The Indian rupee continued its downward trajectory on Friday, tumbling 0.2% in early trading to hit a fresh record low of 94.1550 against the US dollar. This decline extends a sharp fall from the previous session on Wednesday, when the currency slipped 29 paise to breach the 94 per US dollar mark, settling at 94.05. The ongoing Middle East tensions, particularly the Israel-Iran conflict, are significantly impacting market sentiment and contributing to the rupee's weakness.
Factors Driving the Rupee's Decline
The currency is being dragged down by persistent foreign institutional investor (FII) outflows, coupled with the escalating Iran crisis, which continues to weigh heavily on investor confidence. In Wednesday's trade, the rupee opened at 93.94 in the interbank foreign exchange market, fluctuating between 93.86 and 94.08 before closing at its lowest-ever level. This followed Tuesday's decline, where the currency had already weakened by 23 paise to finish at 93.76.
Notably, supportive market cues failed to stem the rupee's fall. These included a decline in global crude oil prices, a softer US dollar, and strength in domestic equities. Traders observed that these positive factors provided little relief, highlighting the overwhelming pressure from geopolitical risks and capital outflows.
Expert Insights and Market Projections
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, commented on the situation. "We expect the RBI to protect the level of 94 in the current financial year and possibly take it down to 93.30 to 92.80," he said. Bhansali further added that the currency is likely to trade in a range of 93.25 to 94.25 in the near term, indicating continued volatility.
Impact on Domestic Equity Markets
The downward momentum in the currency market spilled over to Dalal Street. The Nifty50 index opened below the 23,100 mark, while the BSE Sensex shed over 800 points in early trading. Around 9:16 AM, the Nifty50 plunged to 23,045.55, down 261 points or 1.12%. Similarly, the BSE Sensex was at 74,438.18, down 835 points or 1%, reflecting broad-based market weakness linked to the rupee's performance and external uncertainties.
Commodities Market and Oil Price Movements
In the commodities market, global oil prices softened after the United States indicated that negotiations with Iran were "going very well" and extended its deadline with Tehran by 10 days. Both key benchmarks declined by approximately 2%. Brent crude, which had earlier climbed to $108 per barrel, eased to $105.75, marking a 2.08% drop. Meanwhile, West Texas Intermediate (WTI) fell 1.94% to $92.67 as of 7:50 AM IST. This moderation in oil prices, however, did not provide sufficient support to the rupee amid the prevailing geopolitical headwinds.
The combination of FII outflows, Middle East tensions, and weak market sentiment has created a challenging environment for the Indian rupee, pushing it to unprecedented lows against the US dollar. Investors and analysts will be closely monitoring RBI interventions and global developments for further cues on the currency's direction.
