The Indian rupee suffered its'severest fall in 2 weeks' on Monday as oil prices rose past $100 a barrel and dollar flows for the currency, sparked by banks unwinding arbitrage positions, dissipated.

The rupee closed the day at 93.3750 to the dollar, down by 0.7%, the biggest decline since March 27 when the central bank announced measures to reduce excessive rupee volatility.

The rupee gained some breathing space as banks unwinded their positions after the measures.

After that, traders believe that the local currency is driven by oil prices and foreign portfolio flows. Brent crude futures increased by nearly 8% on Monday to $102.8 a barrel as the U.S. moved to impose an Iranian shipping blockade after the weekend peace talks collapsed.

Investors' relief at a ceasefire was short-lived as they began to worry about the dangers of a prolonged conflict.

In the first month of this year, foreign investors have sold local stocks and bonds worth more than $6.5 billion, which is an increase on March's $13.6 Billion?outflow.

Since the start of the war, oil prices have increased by over 40%. This has pushed?India's?50 Nifty down by 5%. The 10-year bond yield has also risen by around 30 basis points.

The focus is now on whether the blockade will encourage another round of negotiation, if the Iranian-backed Houthis are able to blockade the southern end the Red Sea in Yemen and what China thinks about the interference with their oil imports.

The Indian financial markets will close on Tuesday due to a national holiday.

(source: Reuters)