Rupee nears two-month low, what's causing the plunge?

The Indian rupee is poised to open on a weaker note on Wednesday, nearing a two-month low against the US dollar. This development comes amid rising crude oil prices and escalating tensions in the Middle East, particularly the Iran-Israel conflict. Brent crude futures saw a significant climb of over 4% on Tuesday, maintaining this upward trend into the Asian trading session on Wednesday.

The rupee's one-month non-deliverable forward indicates an opening in the 86.38-86.42 range, compared to 86.24 in the previous session. Traders observe that the bias remains firmly on the downside.

Geopolitical factors are playing a significant role. Concerns are mounting regarding potential disruptions in oil supply due to the ongoing conflict, which has now entered its sixth day. The situation is further complicated by the US's strategic military movements, with reports that Washington is deploying more fighter aircraft to the region.

As markets await the Federal Reserve’s policy decision, expected to keep rates unchanged, attention is focused on indications of future rate cuts. BofA Global Research suggests a potential increase in the Fed's median projection by 25 basis points from March's 3.875%.

Due to the stronger dollar and rising global crude oil prices amid the intensifying Iran-Israel conflict, the rupee dropped 30 paise to settle at Rs 86.34 against the US dollar on Tuesday. 

Forex traders claim that the rupee is under additional pressure due to weak mood in the domestic equity markets. 

The rupee began trading at 85.96 against the US dollar at the interbank foreign exchange and fluctuated between 85.89 and 86.34. Ultimately, it dropped 30 paise from its previous close to settle at 86.34.

On Monday, the rupee finished at 86.04 against the dollar. The price of Brent crude, the world's standard for oil, increased 1.60 percent to 74.40 per barrel in futures trading after skyrocketing in recent days due to the intensifying Israel-Iran crisis.