Business Recorder
MUMBAI: The Indian rupee is set to come back under pressure on Monday after a two-week relief rally, weighed down by a jump in oil prices following the failure of Washington and Tehran to reach a deal to halt the war. The rupee is expected to open at 93.10-93.20 to the US dollar, having settled at 92.7275 on Friday, per traders. Brent crude for June delivery climbed 7% to $102 a barrel , while US equity futures and Asian shares fell. US Treasury yields and the dollar rose, reversing last week’s moves that had followed a US-Iran ceasefire. That ceasefire appeared increasingly fragile after weekend talks in Pakistan failed to yield an agreement to end the war. Following the breakdown in negotiations, US President Donald Trump said on Sunday that the U.S. Navy would begin blockading the Strait of Hormuz. “Not only does this restrain exports from Persian Gulf oil producers, it will restrict Iran’s ability to export oil and will exacerbate the supply disruptions the market is experiencing,” ANZ Bank said. Trump further warned that oil prices may remain elevated through the U.S. midterm elections in November, a rare acknowledgement of the potential political fallout from his decision to attack Iran six weeks ago. Prolonged high oil prices would be a concern for oil-importing India, stoking inflation worries, undermining the economic outlook and adding pressure on the rupee. Double whammy Beyond higher oil prices, the rupee faces the risk of reduced dollar inflows after banks completed the forced unwinding of arbitrage trades. The unwinding was triggered by the Reserve Bank of India’s move to cap banks’ onshore forex positions, a process that had supported the rupee over the past two weeks by forcing dollar sales in the domestic market. However, the deadline for banks to bring their positions down expired on Friday, meaning the rupee will no longer benefit from those supportive flows going forward.
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