With reports of gunfire attacks on container ships in the Strait of Hormuz, Brent crude oil prices rose above $100 a barrel and pegged back regional stocks, including a 0.9% drop in India’s benchmark Nifty 50 index.
The rupee closed at 93.7950, down 0.3% from the previous close and hovering near its weakest level in three weeks.
The rupee managed to avoid steeper losses on the day on account of likely intervention by the central bank, traders said.
Oil-sensitive Asian currencies were on the defensive with the Philippine peso and Indonesian rupiah enduring losses, while the Chinese yuan, an overall outperformer in the region, held steady.
“For now, the financial markets remain in limbo, awaiting news on whether there will be progress or whether another wave of military attacks lies ahead,” MUFG said in a note.
“We are surely on the cusp of another surge in crude oil prices if this ceasefire does not hold, and that will most likely have a more notable knock-on impact on risk assets.”The future trajectory of the rupee, though, traders and analysts say, will depend on how high oil prices remain and for how long.
An extended energy shock is likely to keep the rupee under strain, and it “wouldn’t be a surprise,” if the central bank takes additional measures to support the currency, a trader at a Singapore-based hedge fund said.
Despite weakness in the local currency, dollar-rupee forward premiums retreated in afternoon trading from intraday highs, with traders pointing to forward dollar sales from both foreign and state-run lenders.
