US, Israel attack Iran: With oil prices up, forex volatility set to continue

MUMBAI: The rupee is likely to come under renewed pressure when forex markets open on Wednesday as the conflict in West Asia has worsened the trade and energy situation beyond expectations of analysts.

On Tuesday, the Indonesian rupiah, South Korean won and Thai baht each fell by more than 1%, leading losses in Asia, while broader emerging-market currency indices dropped about 0.5% in their worst session since Nov 2024.




The selloff followed a sharp escalation in the conflict, with Iran moving to effectively choke tanker traffic through the Strait of Hormuz, sending crude prices up roughly 9% in London trading. The spike in oil heightened concerns over inflation, wider current account deficits and delayed rate cuts in oil-importing economies. Investors rushed into the US dollar and gold, pushing the dollar to multi-month highs and triggering capital outflows from riskier assets.

According to KN Dey, forex consultant, the rupee is most likely to breach 92 level this week. "Oil prices have risen sharply and supply chains are getting disrupted. Most Asian currencies have already fallen, with the Korean won and the Malaysian ringgit down over 1%. The rupee will open under pressure and a gap-down start is likely. Stop-loss levels could trigger early, adding to volatility," he said. "Going ahead would be very tough, RBI's intervention would only act as a speedy breaker."

What has worsened the conflict situation is that it has created a supply-chain crisis. "Beyond the immediate risk to oil and gas supplies from the Gulf, the broader concern is how the conflict may influence trade behavior across Asia," said Choon Hong Chua, senior director, Moody's.

"This raises the risk of selective export restrictions, informal boycotts, and tighter customs scrutiny as govts seek to limit exposure to secondary sanctions or political repercussions," he added.