Rupee Hits 95.46 as Crude Oil Tops $102 a Barrel

Rupee closed at 95.46 against the US dollar on September 10, down 38 paise, as Brent crude surged past $102 on US-Iran tensions, extending Wednesday's 34-paise fall and deepening India's import-cost concerns.

Rupee slides for second straight session

The Indian rupee weakened further on Thursday, settling at 95.46 (provisional) against the US dollar, a drop of 38 paise from Wednesday's close of 95.08. The domestic currency had opened the day at 95.15 and touched an early low of 95.33 before sliding further through the session.

One rupee comprises 100 paise, so a 38-paise move is a meaningful single-day shift in currency markets. This marks the second consecutive day of losses for the rupee. On Wednesday, it had already slipped 34 paise from the previous close of 94.74, trading in a range of 94.80 to 95.22 before settling at 95.08. Taken together, the rupee has shed 72 paise against the dollar over two trading sessions.

Crude oil's climb past $102 is the key trigger

The primary force behind the rupee's weakness is crude oil, not dollar strength. Brent crude, the international benchmark that heavily influences the pricing of India's crude oil imports, settled at $102.51 a barrel on Thursday, up 1.28%, after jumping 2.94% on Wednesday to close at $100.73 its first move above the $100 mark in nearly six weeks.

The crude rally follows an escalation in US-Iran tensions. The US military targeted five Iranian oil tankers on Tuesday, September 8, in response to earlier attacks on US naval vessels, and Iran retaliated against US interests in Jordan. The developments have fanned concerns about potential supply disruptions from the region, pushing oil prices higher.

Notably, the US Dollar Index remained largely unchanged through this period at 98.81 on Thursday against 98.84 on Wednesday indicating that the rupee's depreciation is being driven almost entirely by oil prices rather than broad dollar strength. Kotak Securities' Anindya Banerjee described the move as "an oil-driven move rather than a dollar move," pointing out that the dollar index itself remains near multi-month lows.

Why costlier crude hurts the rupee

India imports close to 90% of its crude oil requirements, making the currency highly sensitive to global oil price swings. According to CR Forex Advisors, every $10 increase in crude prices can add an estimated $12–15 billion to India's annual import bill, widening the current account deficit the gap between what the country earns from exports and spends on imports and adding pressure on the rupee.

Compounding the strain, dollar inflows from earlier FCNR (Foreign Currency Non-Resident) deposit schemes that had previously helped offset current account pressure are no longer available, according to the same commentary. This has left the rupee more exposed to swings in crude prices at a time when West Asian tensions remain elevated.

FII selling adds to the pressure

Foreign institutional investors (FIIs) turned net sellers of Indian equities this week, adding to the currency's woes. FIIs pulled out Rs 582 crore on Wednesday, following a much sharper net outflow of Rs 12,319 crore on Tuesday, September 8. This marks a reversal from the relatively steadier inflows seen in the preceding months. When FIIs sell Indian shares and repatriate proceeds, the resulting dollar demand adds further downward pressure on the rupee.

Equities show a mixed response

Indian equity benchmarks reacted differently across the two sessions. On Wednesday, the Sensex fell 813.35 points to close at 74,764.23, while the Nifty dropped 203.60 points to 23,431.50, tracking the heavy FII selling and rupee weakness. By Thursday, however, both indices recovered modestly the Sensex rose 138.36 points to 74,902.59 and the Nifty gained 46.30 points to close at 23,477.80 even as the rupee extended its slide.

This divergence suggests domestic institutional buying may have partly cushioned the market against currency-driven pressure, though the rupee's own trajectory continued to weaken independent of the equity recovery.

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What is cushioning the fall

India's foreign exchange reserves, which stand at more than $740 billion, remain a key buffer against sharp currency volatility. These reserves, held by the Reserve Bank of India, give the central bank room to intervene and smooth out excessive swings in the rupee, although no specific RBI intervention has been officially confirmed for these sessions.

What Indian investors should watch

For Indian markets, the interplay between crude oil prices and the rupee has direct consequences. A sustained rise in oil prices tends to weigh on import-heavy sectors such as aviation, paints, and chemicals through higher input costs, while export-oriented sectors like IT could see some relative benefit from a weaker rupee.

Going forward, the trajectory of US-Iran tensions, the direction of FII flows, and any signals from the RBI on currency management will be key factors determining whether the rupee stabilises or extends its current slide. Crude oil's movement around the $100–105 band remains the most immediate variable to track for currency and market direction in the days ahead.