Rupee weakens against US dollar as oil surge and West Asia tensions weigh

The rupee weakened against the US dollar in early trade on Monday as escalating tensions in West Asia drove crude oil prices higher, while sustained demand for the greenback and continued foreign portfolio outflows added pressure to the Indian currency.

The rupee opened at 96.53 against the US dollar in the interbank foreign exchange market, compared with Friday's close of 96.30. It later recovered some ground to trade at 96.42, down 12 paise from the previous session.

The decline came after the rupee had ended higher on Friday, supported by positive domestic market sentiment and softer US Treasury yields.

Forex dealers attributed Monday's weakness primarily to the sharp rise in global oil prices, which has renewed concerns over India's import bill and inflation outlook.

Brent crude climbed above USD 90 a barrel after fresh military action intensified the conflict between the United States and Iran, raising fears of prolonged disruption to energy supplies and shipping through the Strait of Hormuz.

The geopolitical uncertainty has boosted demand for the US dollar as a safe-haven asset, even as the dollar index, which measures the greenback against a basket of six major currencies, remained broadly stable.

Domestic equity markets also came under pressure. The BSE Sensex fell nearly 600 points in early trade, while the NSE Nifty slipped below 24,200, reflecting cautious investor sentiment amid rising geopolitical risks.

Foreign institutional investors continued to trim their exposure to Indian equities, remaining net sellers during the previous trading session, further weighing on the rupee.

Providing some support to the broader macroeconomic outlook, the Reserve Bank of India reported that the country's foreign exchange reserves rose by USD 964 million to USD 675.16 billion during the week ended 10 July, extending the gains recorded in the previous week.

Market participants are expected to closely monitor developments in West Asia, movements in crude oil prices and foreign investment flows for further cues on the rupee's direction in the coming sessions.

With IANS inputs