The Indian rupee weakened by 33 paise to open at 95.95 against the US dollar on Tuesday, 14 July, as renewed geopolitical tensions in the Middle East lifted crude oil prices and dented investor sentiment.
The currency came under pressure after a third consecutive night of US strikes on Iran heightened concerns that the fragile ceasefire could unravel, triggering a fresh rally in global oil prices.
Adding to the pressure, hawkish comments from a US Federal Reserve official pushed Treasury yields higher, a move traders said could further weigh on the rupee.
Brent crude rose to $85.64 a barrel in Asian trade, its highest level in more than a month, following the latest US military strikes on Iran and reports of attacks on tankers in the Strait of Hormuz.
After surging nearly 10% on Monday, Brent is now up more than 20% from its recent lows, reversing much of the relief the rupee had enjoyed from softer crude prices in recent weeks.
The rupee had earlier recovered to around the 94-per-dollar mark after the Reserve Bank of India (RBI) announced measures to attract dollar inflows, improving the currency’s near-term outlook. Although a significant portion of those inflows is still expected, the resurgence in crude oil prices has once again become the primary source of pressure on the domestic currency, according to a Reuters report citing a currency trader at a bank.
Middle east tensions drive fresh rally in crude prices
According to market experts, the recent surge in crude oil prices has been fuelled by escalating geopolitical tensions in the Middle East. Brent crude has climbed from around $72 per barrel in June to nearly $84, marking a gain of more than 15% this month.
Analysts noted that Washington’s efforts to curb Iran’s ability to disrupt maritime shipping, coupled with Tehran’s retaliatory actions against US allies in the region, have intensified concerns over the security of commercial shipping. Fresh attacks have also renewed fears over the uninterrupted flow of oil through the strategically important Strait of Hormuz.
Experts added that US President Donald Trump’s decision to reinstate restrictions on Iranian shipping, along with his demand for a 20% reimbursement on other cargo transiting the waterway while signalling continued military action, has further clouded the outlook. The latest developments have also raised questions over last month’s interim US-Iran agreement, which had briefly eased concerns about regional stability.
Hawkish Fed signals strengthen the US Dollar
Market strategists said the dollar’s recent strength is being driven not only by geopolitical uncertainty but also by expectations of tighter US monetary policy.
They pointed out that comments from Federal Reserve Governor Christopher Waller, indicating that interest rates may need to remain higher if inflation stays well above the Fed’s 2% target, prompted markets to increase expectations of further rate hikes, boosting the greenback.
Experts also noted that investors have preferred the safety of the US dollar ahead of the closely watched US inflation data, while gold has remained under pressure. They said periods of heightened uncertainty combined with higher-for-longer interest rate expectations typically support the dollar and weigh on emerging market currencies, including the Indian rupee.
Foreign Bond inflows offer some relief to the Rupee
Despite the external headwinds, experts believe the rupee continues to receive support from steady foreign investment into India’s debt market.
Foreign portfolio investors have purchased around $3 billion worth of Indian government bonds since 1 June through the Fully Accessible Route (FAR), reflecting sustained confidence in India’s fixed-income market.
However, analysts cautioned that while these inflows provide a cushion for the rupee, they may not be sufficient to fully offset the pressure from a widening trade deficit if crude oil prices remain elevated for an extended period.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, the 95.80-96.00 zone remains a crucial resistance area for USDINR. The pair is now trading just below this barrier, and a sustained break above it could open the door for a swift move higher. Broader view remains constructive, with USDINR likely to move towards the 96.30-96.50 region in the coming days.
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