The rupee closed at a record low of 94.81/$, weakening 84 paise from its previous close of 93.97/$1. The rupee had weakened to 94.85/$ on Friday and has declined over 3.5% this month, LSEG data showed. Brent crude oil prices rose by $1.87, or 1.73%, to $109.88 a barrel. While state run banks sold dollars, likely on behalf of the central bank, the intervention was mild, traders said.
In the event of only mild intervention during a period of heightened geopolitical event risk, such as the ongoing war, the rupee remains vulnerable to further depreciation. Many traders are now incorporating levels as weak as 97 per dollar into their forecasts.
“Nothing really changes until the Strait of Hormuz opens up. Even if the intensity of the war eases a bit, as long as there’s still friction around the strait and oil is hovering near $115, the rupee could easily drift towards the 96/$ to 97/$ per dollar range,” said Anindya Banerjee, head of commodity and currency at Kotak Securities.
The rupee opened at 94.15/$, and drifted consistently downwards, with a mild 10-15 paise uptick every time the central bank sold dollars. The uptick was seen at multiple key levels like 94.40/$, 94.65/$, 94.85/$, a trader with a public sector bank said. The rupee weakened to 94.85/$ during the day.
“It is possible that we may see some mild appreciation on Monday as it is the last trading day of the fiscal year. But overall, RBIs intervention has decreased and they may not want to add additional forward positions into already heavy books. But the way the rupee has depreciated, we have to think of the 100/$ level as a serious possibility now,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
While Trump extended his deadline for Iran to reopen the Strait of Hormuz or face the destruction of its energy infrastructure, the U.S. has also sent troops to West Asia. Analysts at Macquarie Group said that oil prices will fall quickly if the war begins to wind down soon but still remain above pre-conflict levels. However, prices could rise to $200 if the war drags on until the end of June, they added.
