Rupee Faces Pressure Near 96 Per Dollar Amid West Asia Tensions

The Indian rupee is likely to open weaker on May 28 as rising concerns around the conflict involving Iran and the U.S. continue to pressure investor sentiment and foreign capital flows. Currency traders expect the rupee to open in the 95.78-95.83 range against the U.S. dollar, compared with the previous close of 95.68.

The domestic currency has remained under pressure as geopolitical tensions in West Asia keep crude oil prices elevated and increase concerns around India’s import bill and external balances.

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Iran on Tuesday accused the U.S. of violating the ceasefire after strikes were carried out near the Strait of Hormuz, a key global energy shipping route. The development has reduced expectations of an immediate resolution to the conflict, which has continued for nearly three months.

Crude Oil Near $100 Raises Pressure on Import-Dependent Economies

Futures contracts for Brent crude were seen trading at around $99 a barrel amid weak performance in the early Asian session. Increased prices in crude oil have impacted various Asian currencies, which are importers of crude oil, such as the Indian rupee, Indonesian rupiah, and Philippine peso.

India, which imports a large share of its crude oil requirement, remains vulnerable to sustained energy price increases. Rising crude oil prices typically widen the current account deficit and increase inflationary pressures through higher transportation and input costs.

According to NSDL data, foreign investors have sold more than $24 billion worth of Indian equities and bonds between March and May so far, reflecting continued risk aversion amid global uncertainty and rising energy prices.

Deepali Bhargava, regional head of research for Asia Pacific at ING, said in a note that India’s structural dependence on imports continues to keep the rupee under pressure despite relatively stable macroeconomic indicators.

Bhargava said ING expects the USD/INR pair to end the year around 95.50, while indicating that risks remain tilted toward gradual currency weakness rather than sharp disorderly depreciation.

Foreign Flows, Bond Yields In Focus

The one-month non-deliverable forward for the rupee was quoted at 96.20, while the onshore one-month forward premium stood at 37 paise. The dollar index traded at 99.12, while the yield on the 10-year U.S. Treasury note was at 4.48%.

NSDL data showed foreign institutional investors purchased a net $230.5 million worth of Indian equities on May 25. However, overseas investors sold a net $20.3 million worth of Indian bonds during the same period.

Asian Markets Remain Mixed

Asian equities traded higher on Wednesday, supported mainly by gains in technology-heavy markets such as Taiwan and South Korea. Taiwan’s market capitalisation has continued to rise sharply due to sustained investor interest in semiconductor companies led by Taiwan Semiconductor Manufacturing Company (TSMC).

Indian equity futures, however, indicated a muted opening as investors monitored developments in crude oil markets, currency movements, and geopolitical tensions.