The Indian rupee opened at 95.55 against the U.S. dollar on Thursday, July 9, matching its previous opening level as investors assessed the impact of higher global oil prices and renewed geopolitical tensions in the Middle East.

The domestic currency showed little movement at the start of trade, although sentiment remained cautious after crude oil extended its recent rally.

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Crude Oil Price Drives Market Sentiment

The crude price continued to move higher after fresh military action involving the U.S. and Iran intensified concerns over energy supplies from West Asia. Brent crude gained about 1% during Asian trading after advancing more than 8% over the previous two sessions.

For India, which imports a significant share of its crude oil requirement, a sustained rise in the crude price can increase import costs and add to inflationary pressure. Higher oil prices may also affect the country’s current account balance if they remain elevated for an extended period.

The renewed increase in the crude price has brought the focus back to the rupee after concerns over oil had eased briefly in recent weeks.

Bond And Equity Markets React

The impact of rising oil prices was visible across domestic financial markets on Wednesday. The benchmark 10-year government bond yield rose 7 basis points, marking its biggest one-day increase in more than three months.

Equity markets also ended sharply lower. Both Sensex and Nifty were down by 2%, marking their biggest daily loss in over three months amid concerns arising out of the recent happenings in West Asia.

The move in the bond, equity, and currency markets came amidst rising caution on the back of sharp spikes in international energy prices.

Focus on International Events

It is likely that investors will keep an eye on geopolitical factors and crude oil prices, since both play a critical role in determining the direction of currency sentiment. Portfolio investment flows from abroad can be impacted by rising oil prices.

As for the time being, the rupee has managed to begin the day on a stable footing. Its direction through the day is expected to depend largely on changes in the crude price, overseas market sentiment and developments in global financial markets.