Middle East risk contagion impacts the forex market, Indian rupee breaks 93 for the first time, hitting a historic low.

With the continued escalation of the Middle East conflict raising concerns about the widening of India's current account deficit, the Indian Rupee fell below the 93 level against the US Dollar, hitting a historical low. Trading resumed on Friday after a public holiday on Thursday, and the Rupee weakened along with other regional currencies, falling as much as 0.7% to 93.28 against the US Dollar. Traders said the Indian central bank intervened in the market on Friday to support the local currency exchange rate. Following attacks on core energy facilities in the Middle East, international oil prices experienced severe fluctuations. Despite a decrease in Brent crude prices from their highest closing level since July 2022 after reassurances from American and Israeli leaders to calm the market, the prices still remained significantly higher than the $70 benchmark estimated by the Indian central bank in October of last year. Mitsubishi UFJ Bank forex strategist Michael Wan said, "We believe that the Indian Rupee still faces depreciation pressure, and if the conflict between Iran and the Middle East continues, and the Strait of Hormuz remains blocked, the USD/INR exchange rate will likely surpass the 95 level." According to data from the Indian central bank, a 10% increase in international oil prices leads to a 15-basis-point decrease in economic growth and a 30-basis-point increase in inflation in the country. In fact, prior to the outbreak of this conflict, due to record outflows of stock funds caused by high interest rates in the United States, the Indian central bank had been intervening in the market for several months to stabilize the Rupee exchange rate. Informed sources pointed out on Thursday that the Indian central bank's net short position in dollars (measuring the size of its forward selling of dollar reserves) in the offshore and onshore markets is close to $100 billion. Since the beginning of this year, global funds have sold more than $9 billion worth of Indian stocks, continuing the trend of record outflows of $19 billion in 2025. Foreign investors are also selling Indian local bonds, with outflows of $1.4 billion in March from bonds included in index standards, potentially reaching a new historical high for outflows within a single month. Given the high international oil prices, going long on the USD/INR has become one of Nomura Holdings' core trading strategies. The institution predicts that by the end of June, the Rupee will depreciate to 96 against the US Dollar. Nomura pointed out that the core logic of bearishness towards the Rupee includes India's high sensitivity to energy prices, continuous foreign outflows, and the possibility of the Indian central bank tacitly allowing the Rupee to gradually depreciate.