Indian Rupee Snaps Eight-Day Rally as Rising Oil Prices and Middle East Conflict Impact Markets

The Indian rupee snapped an eight-session-long winning streak on Thursday as Brent oil prices climbed to their highest level since May. The currency endured a volatile trading session, swinging from its strongest level in over six weeks before closing down 0.4% at 94.8175 per dollar.

Earlier in the day, the currency found support from chunky foreign inflows related to Jio Platforms’ IPO. These inflows added to tailwinds from the Reserve Bank of India’s defensive measures that had previously boosted the currency. However, those gains faded in the latter half of the session as oil prices climbed and broad-based dollar demand emerged locally.

The currency movement coincided with a wider risk-off move in global markets. MSCI’s All-World index was set for its largest daily fall in two weeks, dropping 0.4% as technology shares from Seoul and Tokyo to Amsterdam and Paris came under pressure. Equity futures also pointed to a weak start for shares on Wall Street.

Brent oil prices rose 3.3% to $112.40 per barrel. Oil prices have remained elevated amid market anxieties over the conflict in the Middle East, despite oil flows from the Gulf holding up. According to an ING note, the sizeable risk premium currently embedded in prices is unlikely to fade until clear signs of de-escalation emerge and reassure investors that regional supply will remain uninterrupted.

India imports nearly 90% of its crude requirements, making the domestic economy vulnerable to Middle East oil shocks. This dependence remains a key risk for the rupee. Meanwhile, market participants and observers remain split over how sternly the RBI should defend the currency against fundamental pressures.

Differing views have emerged on exchange rate management. Senior IMF official Krishna Srinivasan stated on Wednesday that India should allow the dollar-rupee exchange rate to move as the first line of defence. In contrast, former RBI deputy governor Michael Debabrata Patra told Reuters that exchange rates tend to overshoot and can cause financial stability risks.

"External macro factors such as crude oil prices and global risk sentiment continue to exert immediate pressure on domestic currency stability. For businesses, particularly in an import-dependent economy like India, currency volatility underscores the importance of robust hedging strategies and prudent financial planning to navigate shifting global market dynamics effectively." — Dr. Shishir Gupta, Founder & CEO, StartupLanes