The Indian rupee weakened to a fresh record low against the US dollar on Wednesday, May 20, pressured by rising US Treasury yields, elevated crude oil prices and persistent geopolitical tensions in West Asia.
The domestic currency opened at a record low of 96.86 against the US dollar and weakened further to 96.91 in early trade.
The rupee has now declined for seven consecutive trading sessions and has touched fresh record lows in six of those sessions. The currency has already weakened 0.6% this week after falling 1.6% last week.
Pressure on the rupee intensified after US bond yields surged amid growing expectations that the US Federal Reserve may keep interest rates elevated 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 US Treasury yield climbed to its highest level since 2007.
At the same time, Brent crude prices remained near $111 per barrel amid concerns surrounding the Iran conflict and possible supply disruptions in global oil markets.
Higher crude prices remain negative for the Indian rupee as India imports a significant portion of its crude oil requirements. Rising oil prices increase dollar demand from oil marketing companies and also widen the country’s current account deficit.
“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 nearly 5% since the start of the Iran conflict and around 11% over the past one year.
Bisen said elevated crude oil prices and ongoing geopolitical tensions have weakened investor sentiment and increased dollar demand, making the rupee one of the weaker performing Asian currencies.
Market participants are now closely tracking crude oil prices, geopolitical developments in West Asia and future guidance from the US Federal Reserve for further direction on the rupee.
Disclaimer: The information provided is for informational purposes only and should not be considered financial or investment advice. Market movements are subject to various risks and uncertainties. Readers should conduct their own research before making financial decisions.