Rupee hits record low on risk aversion, rising oil prices

Rupee vs Dollar: The Rupee plunged to a new all-time low against the US Dollar on Friday, opening at 83.5550, as escalating tensions in the Middle East triggered a flight to safety among investors.

This sharp depreciation follows media reports of Israeli missile strikes targeting Iran. The news comes amidst heightened regional tensions following an earlier drone strike by Iran against Israel in retaliation for an attack on its embassy in Syria.

The uncertainty surrounding the situation is prompting investors to seek shelter in safe-haven assets like the US Dollar, leading to a global selloff in riskier assets like equities and emerging market currencies, including the Rupee.

Rising oil prices

Further compounding the pressure on the Rupee is the surge in global oil prices. Brent crude oil prices spiked over 4 per cent to breach the $90 per barrel mark, driven by concerns over potential disruptions to oil supplies from the Middle East.

RBI intervention and investor sentiment

The Reserve Bank of India (RBI) has been actively intervening in the forex market to curb the Rupee's decline. However, the effectiveness of these interventions remains uncertain amidst the ongoing geopolitical turmoil.

Foreign investors have also been net sellers of Indian stocks and bonds in recent days, further pressurising the Rupee.

"A key focus today will be on the evolving situation regarding the Israel strikes and the Reserve Bank of India's potential intervention in response," said an FX trader at a bank.

The Reserve Bank of India has been actively intervening to mitigate the rupee's decline, which, like other Asian currencies, faces pressure due to Middle East concerns and expectations of sustained higher U.S. interest rates.

Investor sentiment regarding Federal Reserve rate cuts has shifted, with forecasts being revised downward. New York Fed President John Williams recently emphasised the lack of urgency for rate reductions.

DBS Bank has recalibrated its projections, now anticipating 50 basis points in Fed rate cuts this year, down from the previously anticipated 100 bps.

(With Reuters inputs.)