Indian rupee plunges for eighth straight session as external headwinds worsen

MUMBAI: The Indian rupee fell to a record low for a sixth consecutive day, ending lower for eight sessions in a row on Tuesday, weighed down by mounting external pressures as the prolonged U.S.-Iran conflict drives a sustained rise in crude oil prices and pushes U.S. Treasury yields higher.

The Indian rupee slumped to a record closing low of 96.5325 per dollar, compared to the 96.3450 level it settled at on Monday. The currency touched a record intraday low of 96.6150 and has fallen 6.1% since the Iran war broke out in late February.

“The market’s biggest challenge right now is not just direction, but confidence. Until there is visible cooling in global tensions and stability in foreign flows, the rupee may continue trading under pressure,” Amit Pabari, managing director at FX advisory firm CR Forex said.

“With no meaningful signs of easing in global risk factors, the pair now appears to be gradually shifting its focus toward the 97 mark.”

Economists expect India’s current account deficit to widen significantly, hit by higher crude oil prices and lower remittances due to the war in the Middle East.

The benchmark Brent crude has jumped over 50% since the start of the war, a major challenge for India’s economy which imports most of its requirement.

The merchandise trade deficit widened to $28.38 billion in April, driven largely by a surge in crude oil imports, while April wholesale inflation accelerated to its highest level in three-and-a-half years, underscoring the pass-through of higher energy costs.

Iran’s latest peace proposal to the United States involves ending hostilities on all fronts including Lebanon, the exit of U.S. forces from areas close to Iran, and reparations for destruction caused by the war, terms similar to the nation’s previous offer, which U.S. President Donald Trump rejected last week as “garbage”.

The recent surge in U.S. Treasury yields, driven by inflation concerns, is further complicating the outlook for the local currency.

The U.S. 10-year Treasury yield climbed to its highest level in over a year this week, with investors increasingly pricing in the possibility of a Federal Reserve rate hike in December.