Oil rally rolls on, casting a fresh shadow on the Indian rupee

MUMBAI: The Indian rupee is expected to come under pressure at Monday’s open after oil prices extended their rally, with Brent crude rising above $90 per barrel on an escalation of hostilities between the US and Iran in the Middle East.

The rupee is expected to slip past 96.50 per US dollar at open, traders said, after settling at 96.28 on Friday.

The currency has fallen 1.7% this month, weighed by a renewed rally in oil prices, and is now within striking distance of its all-time low of 96.96 touched in May.

After hitting those lows, the rupee had found relief from what has since proved to be a short-lived decline in oil prices and measures by the Reserve Bank of India aimed at attracting dollar inflows.

An improvement in foreign inflows into Indian equities had further lent support to the currency.

That relief has proved fleeting, however, with oil prices resuming their upward march. Brent crude rose 2.7% on Monday to cross $90 a barrel for the first time in nearly six weeks.

At the height of optimism over a potential US-Iran peace deal, it had fallen to near $70 a barrel.

The Middle East conflict escalated over the weekend, with the US carrying out a ninth consecutive night of attacks on Iran, while US allies Kuwait and Bahrain reported fresh Iranian strikes.

In recent days, both sides have targeted shipping traffic, disrupting flows through the Strait of Hormuz.

“If this escalation goes unchecked, we could return to an environment of wide-scale attacks across the Persian Gulf,” ING said in a note.

“Flows are essentially back to where they were before the (US-Iran) Memorandum of Understanding.”

US Treasury yields rose on Monday, while US equity futures were little changed following Friday’s selloff.

Oil-sensitive Asian currencies, including the Indonesian rupiah and the Philippine peso, weakened.