Rupee falls to all-time low of 96.91 against dollar on oil, US rate concerns

The Indian rupee opened at a record low of 96.86 against the US dollar on Wednesday (May 20) and weakened further to 96.91 in early trade, pressured by rising US Treasury yields, elevated crude oil prices and persistent geopolitical tensions in West Asia.

The domestic currency has now weakened for seven consecutive sessions and has touched fresh record lows in six of those trading days. The rupee has already declined 0.6% this week, after falling 1.6% last week.

Pressure on the rupee intensified as US bond yields surged on growing expectations that the US Federal Reserve may keep interest rates higher for longer or even consider another rate hike later this year. The benchmark 10-year US Treasury yield has risen more than 20 basis points over the past four sessions, while the 30-year yield climbed to its highest level since 2007.

Analysts said the sharp rise in global yields, combined with elevated crude oil prices, is worsening pressure on emerging market currencies including the rupee.Brent crude hovered near $111 per barrel

on Wednesday (May 20) as concerns over the Iran conflict and supply disruptions kept oil markets volatile.

Higher oil prices are significant for India, which imports a large share of its crude requirements. Rising crude costs typically increase dollar demand from oil marketing companies and widen the country’s current account deficit, putting additional pressure on the rupee.

“The rupee, having largely adjusted to the prospect of persistently high oil prices, now faces a repricing due to the sizeable shift in U.S. rates,” a currency trader at a bank said.

According to Abhishek Bisen, Head of Fixed Income at Kotak Mahindra Asset Management Company, the rupee has weakened by around 5% since the start of the Iran conflict and nearly 11% over the past year.

Bisen said elevated crude oil prices and ongoing geopolitical tensions have increased dollar demand and weakened investor sentiment, making the rupee one of the weaker-performing Asian currencies. He added that while the currency appears relatively undervalued on a real effective exchange rate basis, near-term movement is likely to remain closely linked to oil price trends and external market developments.

Market participants will continue to track crude oil prices, geopolitical developments and signals from the US Federal Reserve for further direction on the rupee.

-With Reuters inputs