MUMBAI: The rupee slid to its weakest level in a month Monday breaching the 91-level again as the Iran war hurt risk assets and lifted oil prices by over 7% while equity markets bled by 1.25%, compounding worries for the nation that sources half of its needs from the Middle East. The rupee fell 0.52% to close at 91.645, its weakest level since early February. The unit opened 0.3% lower at 91.25 and continued to lose ground through the day.
The US and Israel launched strikes on Iran over the weekend, killing the supreme leader Ayatollah Ali Khomeini and the top military leadership. In retaliation, Tehran rained missiles on all the Gulf nations that have US assets, raising the risk of protracted conflict in the region which will affect shipping and airlines.
Government bonds were also under pressure, with the yield on the 10-year benchmark rising 3 bps at 6.6902%.
Traders said the Reserve Bank intervened in the market as the rupee slipped past the 91-level, thus arresting more cuts. A trader at a public sector bank said the Reserve Bank was active in the non-deliverable forwards market, offering some support to the rupee, while foreign banks were seen offering spot dollars.
Brent crude oil futures were last up nearly 6% on the day, after touching a peak of $82/barrel in earlier trade. But precious metals did not react the way these safe haven assets normally attract investor interest during geopolitical crisis like the one unfolding now. While gold gained 2.5% on the CME, silver was up 1.5%.
In the domestic market, gold April futures were trading 4.15% up at Rs 168,808/10 grams, while silver futures for March delivery was 3.64 to Rs 2,85,004/kg and crude oil March futures were up 9.1% to at Rs 6,646/barrel on MCX.
"Higher oil prices present a compounded risk on top of the weak capital flows which have already been weighing on the rupee," said Dhiraj Nim, an economist and forex strategist at ANZ.