The rupee weakened to a two-month low on Monday as rising crude oil prices and escalating tensions in West Asia fuelled concerns over India's import bill and inflation outlook. Although the currency came under sustained pressure during the session, intervention by the Reserve Bank of India (RBI) helped limit the losses.
The rupee closed at 96.4450 against the US dollar, down nearly 0.2 percent from the previous close. During intraday trade, it slipped to 96.5250, its weakest level since mid-May.
Market participants said the RBI sold dollars through state-run banks to curb excessive volatility in the currency market. The intervention, coupled with a pullback in crude oil prices later in the day, prevented the rupee from falling further.
The rupee came under pressure as Brent crude hovered close to $90 a barrel following renewed military action in West Asia.
Oil prices eased from intraday highs after Iran indicated that negotiations with the United States could continue if they aligned with its national interests. However, geopolitical uncertainty remained elevated as US forces reportedly carried out another round of strikes on Iran, while concerns persisted over shipping through the Strait of Hormuz after two oil tankers were reported damaged.
Asian stock markets and regional currencies traded mixed, while the US dollar index remained largely steady around 100.7.
Market participants continued to favour the dollar as higher energy prices increased the likelihood that the US Federal Reserve would maintain a cautious stance on interest rates.
Financial markets are currently pricing in:
Around 36 basis points of US Federal Reserve rate hikes over the next 12 months.
Nearly 70 basis points of policy tightening by the Reserve Bank of India during the same period.
Higher interest rates generally support the US dollar, adding pressure on emerging market currencies such as the rupee.
With the West Asia conflict showing little sign of easing, currency markets are expected to remain volatile, with movements in crude oil prices continuing to be the primary driver of the rupee's direction.