Rupee surges 31 paise to 94.29/$ on Iran deal, oil prices

While the peace agreement aims to reopen the Strait of Hormuz and lower oil prices, market participants are increasingly questioning the deal's durability and longevity. On Monday, US President Donald Trump announced that Washington and Tehran had signed a preliminary agreement to halt the war, though a permanent truce is yet to be negotiated. The arrangement would allow the reopening of the Strait of Hormuz, a critical chokepoint through which roughly one-fifth of global oil and liquefied natural gas supplies pass. However, ING Bank noted in a recent report that "plenty of questions remain - not least whether the deal can stand the test of time." Anil Bhansali, head of treasury at Finrex Treasury Advisors, said markets were awaiting details of the Iran deal, which are yet to be released, adding to the uncertainty surrounding the agreement's long-term impact. Analysts also warned that despite the recent slide in oil prices, uncertainties remain over the implementation of the reported US-Iran agreement and the broader security situation in key shipping routes, which could continue to influence energy markets and currency movements.

Brent crude futures were trading lower by 0.37 per cent at $78.67 per barrel in futures trade, continuing the softening trend that has benefited India significantly. As the world's third-largest importer and consumer of oil, India stands to benefit significantly from lower crude prices, which help reduce its import costs. Amit Pabari, Managing Director at CR Forex Advisors, noted that "For India, lower oil prices are always welcome news. Every sustained $10 drop in crude oil reduces India's import bill by roughly ₹12-13 billion a year." Anuj Choudhary, Research Analyst at Mirae Asset ShareKhan, explained that "The crash in Brent crude below the USD 83-level will significantly reduce India's current account deficit for FY27. This is the principal reason behind the rupee's strength." The drop in oil prices followed reports of an interim agreement between the United States and Iran that could eventually allow Tehran to resume oil sales, raising expectations of improved global supply conditions.

Market participants are closely watching the Federal Reserve's first policy announcement under Chair Kevin Warsh, with the US central bank widely expected to keep interest rates unchanged. While the US central bank is widely expected to keep interest rates unchanged, investors will focus on the accompanying statement, economic projections and comments for clues on the future path of monetary policy. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 0.01 per cent down at 99.52, supporting the rupee's strength. The yield on the benchmark 10-year government bond also softened by 2 basis points to settle at 6.86%, retreating from its previous level of 6.87%, according to The Economic Times. The dollar eased on Wednesday ahead of the Federal Reserve's first policy decision under Chair Kevin Warsh, with lingering optimism over an interim U.S.-Iran peace deal underpinning risk appetite and dampening demand for the U.S. currency.

CR Forex Advisors MD Amit Pabari expects the rupee to move towards the 94.00-93.80 zone in the coming days. "The rupee's bias has shifted. On the upside, 95.00-95.30 is now a strong resistance zone for USDINR. With expectations of strong foreign capital inflows and USDINR having decisively broken below the 94.80 level, the pair could gradually move towards the 94.00-93.80 zone in the coming days," Pabari explained. He further added that the signing of the US-Iran agreement in Geneva on June 19 remains the event to watch, stating "Until then, the recovery is real but the ground is not yet firm." Jateen Trivedi, VP Research Analyst at LKP Securities, said the rupee has now moved into an important resistance zone near 94.80–94.00. "Support is seen around 95.00, and if positive developments around the Strait of Hormuz continue, a sustained move below 94.80 could pave the way for further appreciation towards 94.00 and potentially 93.50 in the coming weeks," Trivedi explained. Mandar Pitale, head of treasury at SBM Bank (India), said "Supported by foreign inflows from the central bank measures and softer oil prices after end of war, the rupee is likely to appreciate toward 94 in the near term before consolidating near that level." Market participants will continue to monitor geopolitical developments, crude oil prices, and foreign fund flows for the next directional move.

On the domestic equity market front, Sensex was up 271.61 points to 77,080.09 in opening trade, while Nifty advanced 55.35 points to 24,044.50. Foreign institutional investors offloaded equities worth ₹749.18 crore on a net basis on Tuesday, according to exchange data. Forex traders said that with the reported de-escalation of the U.S.-Iran conflict and diplomatic agreements regarding the Strait of Hormuz, the immediate threat to global energy supplies has significantly reduced. U.S. Vice-President J.D. Vance will lead the U.S. delegation for the in-person signing of the peace deal with Iran in Switzerland on Friday, President Donald Trump said, with both Trump and Vance having electronically signed the framework agreement with Iran's lead negotiator Mohammad Bagher Ghalibaf, according to a senior US official quoted by The New York Times. The Strait of Hormuz, located between Iran and Oman, is considered one of the world's most important energy chokepoints, carrying a substantial share of global oil and liquefied natural gas exports.