The Indian rupee declined to its weakest level in over a month on Monday, as renewed hostilities in the Middle East and Iran's claim of closing the vital Strait of Hormuz sent oil prices surging.
State-run banks were spotted offering dollars, most likely on behalf of the Reserve Bank of India, four traders told Reuters. The likely intervention helped limit the currency's fall to near 95.7875 per dollar, its weakest level since June 4.
By 11:30 a.m. IST, the rupee was at 95.76, down nearly 0.5%, in line with weakness in regional currencies.
"Markets had largely taken off the risk of severe escalation in the Gulf, but with that back on the table, USD/INR could test 96.50 and above levels," a trader at a foreign bank said.
While the RBI is likely to continue intervening to curb volatility, a shift in fundamental factors would likely mean it would not anchor the currency to a specific level, the trader added.
U.S. and Iranian forces have exchanged heavy missile and drone assaults, with Tehran targeting U.S. facilities in states across the Gulf on Sunday. Last week, U.S. President Trump said he considers the interim ceasefire to be over, while leaving the door open to more talks.
"Just when one thought Middle East uncertainty was fading, the US and Iran pull you back in. The closure of the Strait of Hormuz highlights how the conflict is unresolved, and the ongoing supply disruption is problematic," HSBC said in a note.
The disruption is a concern for major energy importers such as India, and a sustained rise in oil prices could trigger portfolio outflows, adding renewed pressure on the rupee.
India's June data for merchandise trade and consumer inflation will be in focus later in the day. The inflation print could shape expectations for monetary policy, while trade data may offer cues on the impact of oil price swings on the current account.
