Rupee Breaches Rs 96 as Geopolitical Risks and Twin Deficits Weigh

The sharp depreciation was triggered by a sudden short squeeze after the rupee crossed the 96 level, compounded by a stronger dollar and rising crude oil prices. The dollar index and global crude benchmarks extended gains after the U.S. rejected Iran's 14-point peace proposal, with Washington reiterating its hardline stance on nuclear issues. "Since the onset of these tensions, the dollar and crude oil have moved in lockstep," said Dilip Parmar, Senior Research Analyst at HDFC Securities.

The fall has amplified concerns over India's import bill and inflation outlook. "The ongoing geopolitical uncertainty and energy-driven macro pressures continued to fuel strong dollar demand globally, pushing the rupee beyond the Rs 96 mark," said Ponmudi R, CEO of Enrich Money. He added that the currency weakness has raised investor anxiety over "India's rising import bill, worsening inflation trajectory, and potential slowdown in economic growth at a time when the macroeconomic environment is already under severe strain."

The rupee's decline coincides with a larger-than-expected widening of India's trade deficit and tepid capital inflows. Technically, spot USDINR now faces support at 95.45, while resistance is seen at 96.20 and 96.85, Parmar noted.

However, Commerce Secretary Rajesh Agrawal struck a measured tone, highlighting a silver lining for exporters. "Our exports, even in this difficult external environment, have been doing well. Rupee depreciation means our exporters need to export more to get the same amount of dollars. So, our growth in rupee terms is much higher in exports, and that's also a positive sign for us," he said.

Agrawal said the Department of Commerce is engaging with industry stakeholders daily to address supply chain and logistics bottlenecks. "The interim minister group in the DGFT meets all stakeholders, trying to resolve issues that exporters may face in supply chain, logistics, internal logistics, port logistics, in order to ensure that the export supply chain does not stop," he said.

He also pointed to the rollout of the Export Promotion Mission, which he said is gaining traction among industry participants. "We see there is good amount of traction in industry for many of these components, and they are looking at the Export Promotion Mission for implicit support to meet the requirements in their ways to increase their exports."

With twin deficits widening and capital flows remaining subdued, analysts believe the path of least resistance for USDINR remains upward unless geopolitical tensions ease or capital inflows improve.

- ANI