Indian rupee falls most in two weeks as oil spikes on US move to blockade Iran ports

MUMBAI: The Indian rupee endured its steepest fall in two weeks on Monday, as oil prices climbed past $100 per barrel, while supportive dollar flows for the currency, spurred by banks’ unwinding of arbitrage positions, dissipated.

The Indian rupee closed at 93.3750 per U.S. dollar, down 0.7% on the day, its sharpest decline since March 27, the day on which the central bank rolled out measures to curb excessive Indian rupee volatility.

An unwinding of positions following the measures gave the Indian Indian rupee some breathing room heading into the April 10 deadline for banks to lower their net open Indian rupee positions.

With that out of the way, traders reckon that the local currency will be driven by how oil prices move and how foreign portfolio flows into Indian assets shape up.

On Monday, Brent crude futures rose nearly 8% to $102.8 per barrel as the U.S. moved to impose a blockade on Iranian shipping after the collapse of weekend peace talks.

Regional stocks took a leg lower while bond yields rose as investors’ relief over a ceasefire proved fleeting as they returned to fretting over the risks of a protracted conflict.

Over the month so far, overseas investors have net sold more than $6.5 billion worth of local stock and bonds, adding to March’s $13.6 billion outflow.

Oil prices have climbed over 40% since the war began, pushing India’s Nifty 50 down by 5% and lifting the 10-year bond yield by about 30 bps.

“The focus now shifts to whether the naval blockade encourages another round of negotiations, whether the Iranian-backed Houthis in Yemen try to block the southern end of the Red Sea and what the likes of China make of interference in their oil imports,” ING said in a note.

India’s financial markets will be shut on Tuesday for a local holiday.