The rupee depreciated 40 paise to close at a fresh all-time low of 95.68 against the US dollar on Tuesday, as renewed tension between the US and Iran has led to risk aversion in global markets. Forex traders said market sentiment remained dominated by fears that the 10-week-old conflict could further tighten global supply, particularly after President Donald Trump rejected Tehran's latest response to a US-backed peace proposal, calling it totally unacceptable. Moreover, market participants interpreted Prime Minister Narendra Modi's comments over the weekend regarding fuel conservation and lower imports as a subtle acknowledgement that India's trade deficit and balance-of-payments pressures could worsen if crude prices remain elevated for longer.
At the interbank foreign exchange, the rupee opened at 95.57 and lost further ground to touch an all-time intraday low of 95.74 against the American currency. The USD/INR pair eventually settled at a record closing low of 95.68, down 40 paise from its previous close. On Monday, the rupee tanked 79 paise to settle at its lowest level of 95.28 against the US dollar. "We expect the rupee to trade with a negative bias amid uncertainties between US and Iran peace talks after the US rejected Iran's response to the US' peace proposal. "Surge in crude oil prices and a strong dollar may further drag the rupee. However, any intervention by the RBI may support the rupee at lower levels. USD-INR spot price is expected to trade in a range of 95.30 to 96," said Anuj Choudhary, Research analyst at Mirae Asset ShareKhan. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 98.28, up 0.33 per cent. Brent crude, the global oil benchmark, rose sharply by 3.09 per cent to USD 107.43 per barrel in futures trade, triggering fears of supply disruptions and rising energy costs.
"Growing realisation of how grim the energy situation is after PM Modi's advisory on Sunday to use fuel judiciously and cut down on Forex outflows spooked markets," IFA Global said in a research note. PM Modi on Sunday called for judicious use of fuel, postponement of gold purchases and foreign travel, among other measures, to strengthen the economy. Addressing a rally organised by the Telangana BJP in Hyderabad, he suggested reducing petrol and diesel consumption, using metro rail services in cities, carpooling, increased use of electric vehicles (EVs), utilising railway services for parcel movement, and working from home to conserve foreign exchange amid the crisis in West Asia. Stressing the need to conserve foreign exchange amid the crisis, Modi called for postponing gold purchases and foreign travel for one year. US President Donald Trump on Monday said the ceasefire with Iran was at its "weakest" and on "massive life support", a day after he rejected Tehran's proposal to end the months-long war as "totally unacceptable". "It is at its weakest... After reading that piece of garbage they sent us... It's on life support, massive life support," Trump told reporters at the Oval Office in response to a question on the ceasefire with Iran in the wake of the rejection of the peace proposal. "They think that I'll get tired of this, or I'll get bored, or I'll have some pressure, but there's no pressure, there's no pressure at all. We're going to have a complete victory," Trump said. On the domestic equity market front, Sensex plunged 1,456.04 points to settle at 74,559.24, while the Nifty tumbled 436.30 points to 23,379.55. Foreign Institutional Investors offloaded equities worth Rs 1,959.39 crore on Tuesday, according to exchange data.