Rupee may test 94–95 zone soon as geopolitical risks mount: Analysts

Mumbai: Currency traders are on edge over whether the rupee will breach the 94-mark against the dollar this week, after US President Donald Trump’s ultimatum to Iran to fully reopen the Strait of Hormuz heightened fears of further escalation of the conflict and supply shocks in energy markets. The rupee ended at a record low of 93.71/$ Friday, and traders said the currency’s trajectory would hinge on crude oil prices and shipping activity through the key West Asia chokepoint. Markets will also watch for any signs of intervention from the Reserve Bank of India in onshore or offshore markets when trading resumes on Monday, which could determine the rupee’s trajectory.

If energy prices remain elevated through the rest of the month, particularly above $100 per barrel, the next range to watch for the rupee is 94-95 per dollar over the next 1-2 weeks, experts said.

“The 93.50/$ level was decisively broken on Friday, and at these levels I expect a slightly firmer hand by the central bank. If RBI is present in the market, we may go to 92.50/$ to 93.50/$. On the other hand, if there is news of an escalation, then we may breach 94/$,” said the treasury head of a large private bank.

The official did not want to come on record amid fluid geopolitical developments. “Giving a firm level in such a volatile environment is like shooting in the dark,” he added.

President Trump early on Sunday threatened to “obliterate” Iran’s power plants if Tehran does not fully reopen the Strait of Hormuz within 48 hours. This comes barely a day after he talked about “winding down” the war.

“Fresh headlines on escalations are emerging almost every morning. The situation remains fluid, so it really all hinges on how crude prices move,” Karur Vysya treasury head VRC Reddy said. “At these levels, I do expect RBI to intervene to manage volatility and stabilise the currency. But if tensions escalate, then the rupee would go to 94/$ and beyond.” The rupee has weakened nearly 3% against the US currency since the start of the Iran war. It is down 8.7% so far this fiscal year.

Market sentiments are shifting rapidly in response to developments, including Trump’s statements on social media and communications from Iranian military officials.

“In a market like this, the risk is unlimited and there is no particular range. The world can handle a price shock, but risk increases exponentially when there is an energy shortage. And hence we are seeing prices increase to levels where it destroys demand,” said Anindya Banerjee, head of commodity and currency at Kotak Securities.

“If oil prices continue to be above $100 per barrel for one more week, then the rupee is definitely going to drift weaker. It may pause a bit at 94/$1, but eventually move to 94.50/$ to 95/$ levels,” Banerjee said.

Brent crude oil prices were last trading at around $106 per barrel, as fresh developments related to attacks in West Asia by both the US and Iranian forces emerged overnight.