The Indian Rupee (INR) traded almost flat against the US Dollar (USD) in Tuesday's opening session, with the USD/INR pair stabilizing around 95.00. This comes as oil prices rebounded strongly by over 4.5% on Monday, although WTI Oil was 1.25% lower near $90 at the time of writing. The recovery in oil prices has dampened the outlook for the INR, given India's reliance on oil imports, which typically leads to currency underperformance when energy costs rise [1]. Foreign Institutional Investors (FIIs) were net sellers on the first day of June, offloading Rs. 3,911.68 crore in Indian equities, raising concerns about India Inc.'s projected earnings amid energy supply shocks driven by Middle East tensions [1].
Geopolitical developments have further complicated the currency outlook. US-Iran negotiations toward a deal have halted, with Iran's Tasnim Newsagency reporting that Tehran has stopped message exchanges with the US in protest against attacks on Lebanon. Iranian officials warned of serious consequences if military actions escalate, including threats to block the Strait of Hormuz. However, US President Donald Trump expressed confidence in extending the ceasefire and reopening the Strait of Hormuz within the next week, stating that a diplomatic "glitch" had been quickly resolved and that attacks between Israel and Lebanon had ceased [1].
In Indonesia, the Rupiah (IDR) rebounded from record lows after the release of domestic inflation data. USD/IDR pulled back from a fresh record high of 18,021, trading around 17,900. Indonesia's annual headline inflation accelerated to 3.08% in May, up from 2.42% in April and above market expectations of 2.97%, remaining within the central bank's target range of 1.5% to 3.5%. Core inflation reached a three-month high of 2.59%. Consumer prices rose 0.28% month-over-month, outpacing the 0.14% gain projected by analysts. The S&P Global Manufacturing PMI rebounded to 50.0 in May from April's ten-month low of 49.1, signaling stable factory conditions supported by domestic demand, though exports remained weak due to ongoing shipping disruptions from the Middle East conflict [2].
The Indonesian government has pledged strict transparency regarding a newly formed state-owned exporter for key commodities, aiming to bolster tax collection, mandate retention of export earnings onshore, and improve domestic USD liquidity to stabilize the IDR. Despite these positive domestic developments, the USD/INR pair received support as the US Dollar remained firm on increased safe-haven demand amid Middle East uncertainty. Iran and its "Resistance Front" allies have reportedly established an agenda to block the Strait of Hormuz and activate additional fronts, including the Bab el-Mandeb Strait, as a means to punish Israel and its supporters [2].
Investors in India are awaiting the Reserve Bank of India's monetary policy announcement on Friday, with expectations that the Repo Rate will be held steady at 5.25% and a hawkish stance maintained due to elevated energy prices and inflationary pressures. Commentary from RBI Governor Sanjay Malhotra will be closely watched for insights into the economic outlook amid the Middle East crisis [1].
CONCLUSION
Both the Indian Rupee and Indonesian Rupiah are experiencing volatility driven by Middle East tensions and shifting oil prices, with Indonesia's currency finding support from stronger-than-expected inflation data and government policy initiatives. Market sentiment remains cautious, as investors await key central bank decisions and monitor geopolitical developments that could further impact currency stability and broader economic outlooks.