The rupee logged its sharpest fall since late-July on Tuesday, pressured by a third straight day of rising oil prices that pushed Brent to near $100 a barrel as the ongoing Iran war deepened worries over sustained energy supply disruptions.
On the day, tensions rose following attacks by Yemen’s Iran-aligned Houthis on some energy facilities in Saudi Arabia and as Tehran threatened the United States with “economic warfare”.
Singed by the pressure, the rupee declined to 94.8175 per dollar by the end of the session, down 0.35% from its previous close.
Traders said the dollar sales from state-run banks, most likely on behalf of the Reserve Bank of India, cushioned the currency’s fall but did not appear intended to anchor it to a specific level.
Persistent central bank interventions had helped drive the rupee higher to a more than two-month peak last week. However, that rally has run into resistance on account of a renewed rise in oil prices and still-elevated hedging demand from local importers.
Other emerging market currencies came under pressure on Tuesday as well, with both the Thai baht and South African Rand slipping about 0.4%.
Asian stocks fell, driving MSCI’s gauge of regional stocks down about 1%. Equities in Mumbai slipped 0.6%.
Analysts expect oil prices to remain a key variable for FX markets in the near term alongside how expectations for a U.S. rate hike evolve over the coming days. A key U.S. consumer inflation reading is due on Friday.
“We continue to think the bullish case for the dollar will prove stronger in the near term, although Friday’s US CPI release remains a clear risk event,” ING said in a note.
Markets are currently pricing in a chance of about 60% for a rate hike by the Federal Reserve next week.