The Indian rupee is expected to open weaker on Wednesday, vulnerable to slipping past the 96-per-dollar mark once again as hopes for an imminent end to the Middle East conflict have ebbed, keeping portfolio and merchant flows skewed against it.
The currency is expected to open in a 95.78 to 95.83 range, traders said, against its 95.68 previous close.
Iran said on Tuesday the U.S. had violated a ceasefire by striking targets near the contested Strait of Hormuz, potentially complicating efforts to bring the three-month-long war to a close. Brent crude fell in Asia trading but stayed in the vicinity of $100 per barrel, weighing down oil-sensitive Asian currencies such as the Indonesian rupiah and Philippine peso.
Worries over the economic risks to India from the Iran war have kept foreign portfolio capital in a steady exit mode with overseas investors selling more than $24 billion of Indian stocks and bonds between March and so far in May.
Alongside elevated energy prices and disrupted exports, this has left India staring at a steep balance of payments gap for the fiscal year ending March 2027.
“Despite relatively strong macroeconomic fundamentals, structural import dependence continues to bias the currency lower,” Deepali Bhargava, regional head of research for Asia Pacific at ING, said in a note.
“We expect USD/INR to end the year at 95.50, with risks skewed more towards gradual stabilisation than a disorderly weakening.”
Meanwhile, stocks in Asia advanced led by tech-heavy indexes in Korea and Taiwan while futures pointed to a muted start for Indian shares.
India’s position as the fifth-largest global market by capitalisation is under threat as Taiwan closes in on the South Asian nation’s spot, powered largely by the rapid rise of chip-making major Taiwan Semiconductor Manufacturing Co.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 96.20; onshore one-month forward premium at 37 paisa
** Dollar index at 99.12
** Brent crude futures down 0.8% at $98.8 per barrel
** Ten-year U.S. note yield at 4.48%
** As per NSDL data, foreign investors bought a net $230.5mln worth of Indian shares on May 25
** NSDL data shows foreign investors sold a net $20.3mln worth of Indian bonds on May 25