Rupee falls the most in two weeks as oil rises due to US move to block Iranian ports

The Indian rupee suffered its sharpest fall in two weeks on Monday, as oil prices edged closer to $100 a barrel, while supportive dollar flows for the currency dissipated due to banks’ unwinding of arbitrage positions.

The rupee closed at 93.3750 per US dollar, down 0.7% on the day, its sharpest decline since March 27, the day the central bank took steps to curb the rupee’s excessive volatility.

The unwinding of positions following the move gave banks some breathing space to reduce their net open rupee positions to move the rupee towards the April 10 deadline.

Thus, traders believe that the local currency will move depending on how oil prices move and how foreign portfolio flows into Indian assets shape up. On Monday, Brent crude futures rose nearly 8% to $102.8 a barrel as the US moved to impose a blockade on Iranian shipping after the collapse of peace talks over the weekend.

Regional stocks fell while bond yields rose as investors’ relief over the ceasefire proved short-lived as they returned to concerns over the risks of a protracted conflict.

During the month so far, foreign investors have sold more than $6.5 billion worth of domestic stocks and bonds, adding to March’s $13.6 billion outflow.

Oil prices have risen more than 40% since the war began, pushing India’s Nifty 50 down 5% and raising 10-year bond yields by nearly 30 bps.

“The focus is on whether the naval blockade prompts another round of talks, whether the Iranian-backed Houthis in Yemen try to block the southern tip of the Red Sea and what China interferes with their oil imports,” ING said in a note.

India’s financial markets will be closed on Tuesday for a local holiday.