Rupee Braces for 86+ as Mideast Strikes Roil Oil

 

MUMBAI, June 13, 2025 – The Indian rupee is poised for a sharp fall at Friday's open, potentially breaching the critical 86 per US dollar barrier, as markets reel from Israel's strikes on Iran and a consequent stratospheric surge in oil prices.

Immediate Fallout: Rupee Under Siege

• Projected Open: 1-month Non-Deliverable Forwards (NDF) indicate the rupee opening significantly weaker, likely between 86.02 to 86.10 per dollar, compared to Thursday's close of 85.60.

• Key Support Breached: The 86.00-86.10 level represents major technical support for the rupee. A Mumbai-based currency trader warned defending this level "will be challenging" given the scale of the shock.

• Risk-Off Tsunami: Global markets reacted violently to the escalation. Brent crude oil soared over 11%, potentially marking its largest single-day jump in three years. US equity futures plunged 1.8%, and safe-haven demand propelled the US Dollar Index above 98.

The Trigger: Israel Strikes Iran

        Israel confirmed attacks targeting Iranian nuclear facilities, ballistic missile factories, and military commanders early Friday. Explosions were reported near Tehran. Israel framed this as the start of a sustained campaign to prevent Iran from acquiring nuclear weapons. The strikes follow heightened tensions over Iran's nuclear program and recent IAEA censure.

 

Why India is Vulnerable: The Oil Shock

India's economy is acutely sensitive to oil price spikes:

• Import Bill: Oil constitutes a massive portion of India's import basket.

• Economic Impact: Economists estimate a $10 per barrel rise in crude can widen India's current account deficit by up to 0.4% of GDP and add up to 35 basis points to headline consumer inflation. An 11% surge represents a jump of over $8/barrel in Brent, posing immediate macro risks.

• Trader Concern: "The real concern for the rupee isn't just today's oil spike - it's the risk of a sustained rally if Middle East tensions deepen," emphasized a Mumbai currency trader.

Broader Market Turmoil

• Safe Havens Rise: The Japanese Yen and Swiss Franc gained as investors sought shelter.

• Yield Puzzle: The 10-year US Treasury yield fell to 4.33% despite the oil surge, reflecting intense risk aversion overwhelming inflation fears in the immediate term.

• Capital Flight: Data showed foreign investors were already net sellers of Indian shares ($15.4 million) and bonds ($296 million) on June 11, before the latest escalation, hinting at pre-existing caution.

    Markets are now fixated on the potential for further escalation. DBS Research noted, "Markets will carefully assess the risk of escalation." The sustainability of oil prices and the broader geopolitical fallout will be key determinants of the rupee's path beyond the immediate plunge.

KEY INDICATORS:

• 1M NDRF: 86.12
• Onshore 1M Forward Premium: 8.75 paise
• Dollar Index: 98.05
• Brent Crude: $77.2/barrel (+11.3%)
• US 10-Yr Yield: 4.33%
• FII Equity Sales (Jun 11): Net $15.4 mln
• FII Debt Sales (Jun 11): Net $296 mln

    The rupee faces immense pressure at the open, with its fate heavily tied to the trajectory of Middle East tensions and the oil market's next moves. Breaching 86/USD signals significant stress for Asia's third-largest economy.