Rupee declined 17 paise to 86.72 against the US dollar in early trade on Monday as global crude oil prices surged following the US’s attack on three nuclear facilities in Iran.
A strengthening dollar and weak domestic equity markets put further pressure on the local unit, according to forex traders.
However, an increase in FII inflows and a rise in the country’s forex reserves prevented further losses in the local currency, they said.
Brent crude, the global oil benchmark, rose 2 per cent to $77.27 per barrel in futures trade, while the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.31 per cent higher at 99.01.
“In a surprise action, the US attacked the nuclear facilities of Iran, taking Brent oil to their highest since January. Brent oil moved up to 77.27 per barrel, which is not much considering the intensity of attacks and Iran’s pledge of retaliation.
“Market participants surely fear that Iran may close the Gulf of Hormuz through which 1/5 of the world’s global crude supply flows,” Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said.
At the interbank foreign exchange, the rupee opened at 86.75 against the US dollar before inching up to 86.72, down 17 paise from its previous close.
The local unit had on Friday snapped a three-day losing streak to settle with a gain of 18 paise at 86.55 against the US dollar.
“India seems to have managed its oil requirement from Russia and the US, avoiding buying oil from the Gulf to some extent. However, higher oil prices will surely affect India’s current account and, therefore, a little weakening of rupee could happen while the RBI intervened to ensure orderliness in the market,” he said.
In the domestic equity market, the 30-share BSE Sensex tumbled 705.65 points to 81,702.52 in early trade, while the 50-share NSE Nifty dropped 182.85 points to 24,929.55.
Foreign institutional investors (FIIs) purchased equities worth Rs 7,940.70 crore on a net basis on Friday, according to exchange data.
The latest weekly data released by the Reserve Bank of India on Friday showed India’s forex reserves rising $2.294 billion to $698.95 billion during the week ended June 13.