Rupee hits record low as oil prices and dollar strength drive dollar demand

The Indian rupee fell to a fresh record low against the U.S. dollar on Tuesday, extending a multi-session decline driven by elevated global oil prices, a strong dollar, and persistent foreign capital outflows. The currency touched an intraday low of 96.60 before settling at a provisional rate of 96.52, marking its seventh consecutive session of losses.

Analysts and traders cited a combination of external pressures, with the protracted geopolitical conflict involving Iran and the United States keeping Brent crude oil futures trading above $109 per barrel. As a major oil importer, India faces a swelling import bill when energy costs rise, increasing demand for dollars. The country imports the majority of its crude oil, much of which transits through the Strait of Hormuz, a chokepoint affected by regional tensions.

The rupee's decline also reflects broader strain on India's external finances. The country's merchandise trade deficit widened to $28.38 billion in April, largely due to higher crude oil imports. Economists expect the current account deficit to widen significantly this fiscal year, with some estimates projecting a balance of payments deficit of $65 billion to $70 billion.