MUMBAI, June 19 (Reuters) - The Indian rupee fell to its weakest level since mid-March on Thursday as risk aversion gripped financial markets, with investors focused on the possibility of U.S. involvement in the Israel-Iran conflict.
The rupee touched a low of 86.8925 on the day before slightly paring losses to close at 86.7225 against the U.S. dollar, down 0.3% on the day.
Brent crude oil prices rose to near $77 per barrel after Israel struck a key Iranian nuclear site on Thursday and Iranian missiles hit an Israeli hospital.
Risk assets remained under pressure, reflecting investor worries about a broader conflict in the Middle East after U.S. President Donald Trump kept the world guessing about whether the country would join Israel's bombardment of Iranian nuclear sites.
ANZ believes the most likely scenario is an extended conflict between Iran and Israel, which would see oil supplies come under direct threat, the firm said in a Thursday note.
"The price outcome for this scenario would be the USD75–85/bbl range," while an escalation of the conflict, pegged at 20% probability, could push prices to $90-95 per barrel.
Oil is a major component of India’s import bill. A $10 barrel increase in crude can widen the current account deficit by up to 0.4% of GDP, economists estimate.
Indian government bond yields rose on Thursday as traders squared off positions, fearing further escalation of geopolitical tensions. The country's benchmark equity index, Nifty 50, dipped 0.1%.
Meanwhile, mild dollar sales from state-run banks helped the rupee limit its losses, three traders said. The currency has declined little under 1% this week so far.
The rupee could find some support near the psychologically important 87 level and is likely to trade with a weakening bias in the near term, a trader at a foreign bank said.
Reporting by Jaspreet Kalra; Editing by Tasim Zahid
Source: Reuters