MUMBAI: The Indian rupee is set to open weaker on Monday, pressured by the rise in crude oil prices and risk-off sentiment following the U.S. military action against Iran.
Non-deliverable forwards indicate the currency will open around 86.75-86.80 per dollar, compared to 86.5850 in the previous session.
Oil prices jumped to their highest level since January after the U.S. joined Israel in attacking Iranian nuclear facilities over the weekend, increasing concerns over the potential impact on energy supply. Tehran vowed to defend itself.
The attack came just after U.S. President Donald Trump said on Friday that such a decision would come “within the next two weeks”.
Fears that Iran may disrupt traffic through the Strait of Hormuz, a key conduit for about a fifth of world crude flows, lifted oil prices and weighed on risk assets.
Goldman Sachs warned that if oil flows through the Strait of Hormuz — a key chokepoint for crude shipments — were halved for a month and remained down by 10% for the following 11 months, Brent could temporarily spike to $110.
Brent crude hit a high of $81.40, before retracing a part of its rally.
The rupee, which had caught a bit of a breather on Friday, unfortunately has to contend with the U.S.-Iran news, a currency trader at a bank said, “and we’re back to watching if 87 breaks”.
An FX trader at another bank noted that the rise in oil prices was milder than expected, and attention now shifts to how Iran chooses to respond.
“While Iran may feel it needs to retaliate to US strikes, blocking the Hormuz might be a step too far,” ING Bank said in a note, and said that the price action in Asian trading suggests markets do not yet believe crude flows through Hormuz will be blocked.
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