Rupee Falls to ₹86.53 as West Asia Tensions and FII Outflows Pressure Currency

The Indian rupee opened lower at ₹86.53 against the US dollar on Thursday, marking its third consecutive session of losses. The decline comes amid persistent geopolitical tensions in West Asia and concerns over sustained foreign fund outflows. The local currency had closed at ₹86.37 in the previous session.

Traders attributed the rupee’s downward movement to a combination of global risk aversion triggered by renewed fears of conflict in the Middle East and a firm tone in crude oil prices, which have historically weighed on India’s trade balance and inflation outlook.

Geopolitical Tensions and Safe-Haven Dollar Demand

The ongoing conflict between Iran and Israel, now in its sixth day, has fuelled risk aversion among global investors. As both nations exchange strikes, the spectre of a broader regional conflagration has rattled markets, pushing oil prices higher and increasing demand for the US dollar as a safe-haven asset. The dollar index climbed above the 99 mark, with the US currency strengthening against most Asian counterparts.

Brent crude prices hovering near $76 per barrel have intensified concerns over India’s current account deficit, with elevated energy costs driving up the country’s import bill and increasing demand for dollars from oil importers, thereby putting further strain on the rupee. Since the escalation of the West Asia conflict, Brent has risen over 12%, and analysts caution that a sustained disruption could trigger additional price spikes, exacerbating the pressure on the rupee and deepening the imbalance in India’s trade dynamics.

Foreign Outflows Add to Currency Pressures

Market participants noted that sustained foreign institutional investor (FII) outflows from Indian equities and bonds are contributing to the rupee’s weakness. The withdrawal is being driven by global portfolio rebalancing in favour of dollar-denominated assets as US Treasury yields remain relatively attractive.

According to provisional exchange data, FIIs offloaded shares worth ₹1,594 crore on Tuesday, extending the recent trend of net selling. This exerts further strain on the rupee as demand for dollars rises to repatriate funds.

RBI Intervention and Outlook

While the Reserve Bank of India (RBI) has reportedly been intervening in the forex market to manage excessive volatility, it appears to be letting the rupee adjust in line with global cues. Traders expect the central bank to continue using spot market and forward interventions if the currency breaches key psychological levels or if volatility spikes.

Looking ahead, currency traders will keep a close watch on geopolitical developments and upcoming US economic data, including Federal Reserve commentary, which may provide further direction on interest rate expectations and their impact on dollar flows.

Conclusion

The rupee’s slip below ₹86.50 underscores the vulnerability of emerging market currencies to global shocks, especially when accompanied by weak risk appetite and capital outflows. With rising oil prices and geopolitical tensions at play, the near-term trajectory of the rupee remains clouded by external uncertainties. Markets will look for signs of stability and potential RBI actions to restore confidence in the currency.

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