Dollar Firms as Tehran Talks Drag, Rupee, Taka and Rufiyaa Feel the Squeeze
Dollar Firms as Tehran Talks Drag, Rupee, Taka and Rufiyaa Feel the Squeeze
Key takeaways
- The US dollar rose against major currencies on Tuesday as markets abandoned expectations of a near-term US-Iran nuclear deal.
- The South Asian currencies hit hardest were the Indian rupee, Pakistani rupee, Bangladeshi taka and Maldivian rufiyaa, all pressured by a firmer dollar and rising Brent crude.
- India imports roughly 85 per cent of the crude it uses, while Pakistan, Bangladesh and the Maldives are similarly fuel-import dependent, amplifying currency pain when oil and the dollar both rise.
- The Reserve Bank of India is thought to have prompted state-run banks to smooth the rupee's move rather than defend a specific level.
- Colombo and Mumbai equity benchmarks fell as foreign desks trimmed risk, while gold held firm in Indian wholesale markets.
Dollar Firms as Tehran Talks Drag, Rupee, Taka and Rufiyaa Feel the Squeeze
The greenback ticked up against a basket of major peers on Tuesday as the market quietly retired the idea that Washington and Tehran are about to shake hands on a nuclear settlement any time soon. For trading desks in Mumbai, Karachi, Colombo, Dhaka and Male, that single sentence translates into a long list of practical headaches.
Signals coming out of Vienna and Washington over the past week have made clear that the gap between the two capitals is wider than the optimistic headlines of mid-May suggested. Sanctions relief, enrichment caps and the question of Iranian missile programmes are all still stuck in the same loop they have been stuck in since the JCPOA unravelled in 2018. With a deal pushed further out on the calendar, the prospect of a sudden flood of Iranian crude back onto world markets has been priced down, and the dollar has taken back some of the ground it lost to that optimism.
Brent ticked higher in tandem, which is where the South Asian pinch starts. India still imports roughly 85 per cent of the crude it burns, Pakistan and Bangladesh sit in similar import-dependent territory, and the Maldives runs almost the entire economy on fuel landed by tanker. A dollar bid plus a firmer oil tape is the textbook combination for emerging-market currency pain on this side of the Indian Ocean.
The rupee duly softened, slipping back toward the weaker end of its recent range as importers rushed to cover oil bills before the dollar squeezed further. The Reserve Bank of India is widely thought to have nudged state-run banks into the market to smooth the move rather than defend any specific level. The Pakistani rupee and Bangladeshi taka faced similar pressure, with Karachi and Dhaka treasuries reporting heavier dollar demand from refiners and remittance corridors leaning the wrong way for the first time in a fortnight.
For Male the calculation is starker still. Maldivian Monetary Authority reserves are thin compared with the giants on either side, and tourism receipts in dollars do not arrive evenly through the year. A sustained move higher in oil while the rufiyaa peg holds means the import bill for diesel, aviation fuel and bottled water all moves the wrong way at once. Sri Lanka, still nursing its 2022 hangover, watches every dollar tick with similar nerves.
Beyond currencies, the Colombo and Mumbai equity benchmarks pulled back as foreign desks trimmed risk. Gold held firm in Indian wholesale markets, which usually says everything that needs saying about how the region is reading the geopolitical tape. Until the Iran file moves, expect Indian Ocean treasuries to keep one finger on the intervention button and the other on the oil screen.