The rupee weakened by 16 paise to close at 96.32 (provisional) against the US dollar on Wednesday, weighed down by heightened geopolitical tensions in West Asia and a rise in global crude oil prices. Forex traders said positive sentiment in the domestic equity markets and a weaker US dollar helped cushion the decline in the Indian currency and prevented a sharper fall.
At the interbank foreign exchange market, the rupee opened at 96.12 against the US dollar and moved in a range of 96.04 to 96.32 during the trading session. It eventually settled at 96.32 (provisional), down 16 paise from its previous close. The domestic currency had depreciated 48 paise to end at 96.16 against the US dollar on Tuesday.
The rupee remained under pressure amid escalating military tensions between the US and Iran. The US military reimposed a naval blockade on Iran and intensified its airstrike campaign early on Wednesday, targeting Iranian army barracks. At least seven troops were killed and 260 people were wounded across the country, according to reports.
Several days of retaliatory strikes by Iran and the US across West Asia, along with attempts by both sides to assert control over the strategically important Strait of Hormuz, have raised fears that the region could once again slide into an all-out war.
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"Elevated oil prices continue to limit the rupee's upside by increasing India's import bill and demand for US dollars. Options market pricing still reflects bearish sentiment toward the rupee, indicating that traders remain concerned about geopolitical risks and the possibility of renewed pressure if oil prices rise further," Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said.
He added that the rupee was expected to remain in the 95.80-96.50 range in the near term, with foreign inflows potentially pushing the currency towards the 95 level in the coming days.
Meanwhile, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was trading at 100.78, down 0.14 per cent. Brent crude, the global oil benchmark, rose 0.47 per cent to USD 85.13 per barrel in futures trade. Higher crude prices continue to remain a concern for the rupee as India imports a significant portion of its oil requirements, increasing the country's demand for dollars.
On the domestic equity market front, the Sensex gained 130.49 points, or 0.17 per cent, to close at 77,185.43, while the Nifty rose 26.45 points, or 0.11 per cent, to settle at 24,078.50. Foreign Institutional Investors offloaded equities worth Rs 739.69 crore in the domestic market on Tuesday, according to exchange data. On the domestic macroeconomic front, wholesale price inflation rose to 9.87 per cent in June from 9.68 per cent in May, driven by a sharp increase in the prices of food and non-food items. Net direct tax collections grew 16.40 per cent to over Rs 6.51 lakh crore till July 13 in the current fiscal, supported by higher corporate tax collections.
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