Rupee falls to near one-month low as oil strain, importer hedging pile pressure

The Indian rupee weakened to a near one-month low on Tuesday, pressed by a stubborn rise in oil prices and sustained hedging by local importers against further weakness, underscoring anxiety over the currency's outlook as it nears the 95 per dollar mark.

The rupee touched a low of 94.54 per dollar during the trading session, its ‌weakest level ⁠since March ⁠30, before closing at 94.19, down 0.4% on the day.

The currency's losses were contained by dollar sales from state-run banks, most likely on behalf of the Reserve Bank of India, four traders said.


Asian currencies were under pressure across the board on Tuesday with oil-sensitive FX especially hard hit as Brent crude oil futures climbed over $110 per barrel ​as U.S.-Iran peace talks remained in limbo.

U.S. President Donald ⁠Trump is ‌unhappy with the latest Iranian proposal on resolving the two-month ​war, a ​U.S. official said, dampening hopes for a resolution to the ⁠conflict that has disrupted energy supplies, fuelled inflation, and killed ​thousands.

Regional stocks were under pressure on Tuesday as well, ​with MSCI's gauge of Asian stocks outside of Japan down 0.7%.

"India, Indonesia, and the Philippines run current account deficits, arguably making their currencies more sensitive to incremental deterioration in the terms of trade," analysts at Goldman Sachs said in a note.

That vulnerability may end up requiring more use of foreign exchange reserves, ‌either separate from or in combination with tightening monetary policy, to manage the pressure, the note said.

The differential exposures have already shown ​up in ​the FX market with ⁠the rupee down 3.5% since the Iran war started while the Chinese yuan has risen 0.3%.

On Tuesday, the dollar was a tad stronger against a basket of ​peers, with the focus turning to a host of central bank policy decisions in the euro zone, the UK and Canada. Earlier in the day, Bank of Japan left policy rates unchanged with a hawkish split among policymakers pointing to a potential rate hike in June.