The Indian rupee began the week on a weak note, opening at 95.35 against the US dollar in the interbank foreign exchange market on Monday, slipping 17 paise from its previous close of 95.18. Market sentiment was weighed down by a stronger dollar, rising crude oil prices, and escalating geopolitical tensions in the Middle East.
Rupee's Recent Performance
The decline comes after the rupee posted its strongest single-day gain in nearly two months on Friday, when it appreciated by 56 paise following the Reserve Bank of India's measures aimed at boosting foreign capital inflows and improving forex liquidity. However, the currency has remained under pressure since the Middle East crisis began, hitting multiple record lows and even breaching the 96 per US dollar mark.
Market Sentiment and Global Factors
Forex traders noted that investors remained cautious due to tensions in the Middle East and strong US economic data. The dollar index, which measures the greenback against a basket of six major currencies, was trading 0.42% higher at 95.33. Meanwhile, crude oil prices also remained under focus, with Brent crude rising 3.43% to $96.28 per barrel in futures trade. The surge came as tensions in the Middle East continued to simmer more than 100 days into the conflict, with Iran and Israel exchanging missile strikes.
Amit Pabari, Managing Director of CR Forex Advisors, told PTI: "Although Israeli authorities reported that all missiles were intercepted and no casualties occurred, the episode served as a reminder that geopolitical risks remain elevated. US President Donald Trump has urged restraint from both sides and called for renewed negotiations with Iran, but markets remain cautious and so does the rupee."
Medium-Term Outlook
Pabari further added that the medium-term outlook for the USD/INR pair remains positive, with the pair likely to break below 94.50 and gradually move towards the 94.00-93.80 zone. However, external factors will remain crucial. "Any escalation in US-Iran tensions, leading to a stronger dollar or higher oil prices, could temporarily push the pair back towards the 95.30-95.50 range," he said.
Impact on Domestic Markets
The weak sentiment was also reflected in the domestic equity markets. The BSE Sensex fell 724.95 points to 73,518.39, while the Nifty declined 222.45 points to 23,138.60 in early trade. According to exchange data, foreign institutional investors sold equities worth Rs 8,776.25 crore on a net basis on Friday.
Investors remain cautious as they await further cues from US economic data, which could provide insights into the US Federal Reserve's future interest rate decisions. The combination of geopolitical risks, a strong dollar, and elevated oil prices continues to weigh on the rupee's outlook.
